The release of the official figures of the GDP – a decline of 23.9 % for India in the first quarter – has inspired several analysts to conjure up different graphical figures to visually explain the economy and its future course of recovery. Some say the economy will have a “hockey stick” kind of a recovery. Others say the economy will assume a “V” kind of a movement – it has plunged down, but will have a sharp recovery. Some predict an “L”- shaped future of the economy – a growth plateau at the ground level, while the more pessimists say the economy will assume a “K” shape, where the rich and privileged will keep growing while the fate of the poor and the most affected by the pandemic, will continue to move downhill.
It is not judicious to blame God or the pandemic only for such a miserable condition of the country’s economy, because the official figures show clearly that the country’s GDP growth did not decline suddenly because of Covid-19, but was steadily going down for the past two years, particularly since demonetisation, and there were no effective steps taken to arrest the decline. The policies adopted during the pandemic certainly aggravated the situation. As Kaushik Basu, former World Bank economist and the former chief economic adviser to the government of India, puts it, the government froze the economy while allowing the pandemic to spread, through free movement of migrants.
According to Basu, investment in India has been declining slowly since 2009. The decline sharpened with the increase in ‘divisiveness’ in Indian politics. The global investors have become wary of investing in India because the ‘trust level’, which is very important for good business, has gone down dramatically. This is the perception, says Basu, of global business watchers like JPMorgan. He feels that India still has a very strong IT sector and a good pharmaceutical business infrastructure which, if there is no further messing of the economy, might rescue India in the next two years.
“Atmanirbhar Bharat” might be a good slogan for building internal confidence’; but it should not build shutters that can come in the way of inviting investments from abroad. India has gained hugely in business because of globalisation and those opportunities must be nurtured. A polarised India has damaged the professional image of the country – that India is a good place to invest in; and as Basu says, politics has to become healthier in India to restore the trust needed for business and growth.
“Make in India” is another slogan within the campaign of Atmanirbhar Bharat, which could have operated in the vacuum created by the boycott of Chinese goods. The defence sector, where the government expenditure is the highest, quite rightly could be the place to make the programme a success. But is the government really serious? Insiders in the defence sector say much of the expenditure in defence goes to “civilian work” like in the Ordinance factories and they do not have a reputation of quality. The defence expenditure is a mystery to the general public and the budget papers do not elaborate. In difficult times like this, government should change policies so that the public can seek more transparency.
Bollywood imbroglios and border skirmishes should not divert our attention from the serious realities we now face in our economy. Fiscal incentives are necessary for short term recovery and perhaps it’s time for a second dose after the 20 lakh crores, mostly in waivers. But for long-term recovery, we need foreign investments and for that we need a ‘political’ solution to the economy in rebuilding trust.