Economic Highlights
New
Delhi, 4 January 2021
Economy
2021
FASTER
BOUNCE BACK!
By
Shivaji Sarkar
The bad year is gone. Hope of a good 2021 has
set in. The bell tolls for a new India despite the burgeoning battle for coming
out of the shadows of COVID-19. The economy is “reflating faster at a pace that
beats most predictions”, says the Reserve Bank of India.
The bounce back it says may be faster in Q4
(last quarter of 2020-21) as the country prepares to present the new Central
budget. The Credit Suisse adds to it saying the growth turn in Industrial
policy can add 1.7 per cent to GDP by 2027 or 0.3-0.5 per cent a year. Nomura
expects a gradual withdrawal of liquidity with higher policy rates.
Recent government measures and some other
indicators suggest positive growth at a slower pace as the economy gradually
unlocks. The RBI says business sentiments have moved to a
recovery path though overall sentiments are yet to reach pre-pandemic levels as
unprecedented lockdown brought activities to a grinding halt.
The pandemic hit major economies. Global growth
came down to minus 4 per cent, advanced economies to minus 6 per cent and the Chinese
economy to about two per cent, according to IMF World Economic Outlook of October
2020. The IMF says that in 2021 all economies are supposed to do better around
4 per cent or more but on a deflated growth in 2020. It projects 10.3 per cent
contraction for India and RBI sees lower 7.5 per cent contraction. Overall
Indian economic growth, as per IMF, may be 8.8 per cent in the next fiscal
year. Since this would be on a low base effect of 2020-21(-23.9 per cent) so
actual growth in 2021-22 may be lower than the 2019-20 level.
India
did not lag behind in announcing stimulus and lending guarantees and pro-poor
measures, including free food grains and higher rural employment guarantees.
The relief to the people, however, did not reflect the rise in demand, perhaps because
of contraction of the cash available to the people. The prolonged lockdown and a
protracted slowdown made businesses ill-equipped to deal with the economic
pain. The increasing bad debt problem with the banks, NBFCs and the financial
sector added to difficulties though public sector banks were merged to create
larger entities to meet global giants.
India’s
sequential or month-on-month recovery looks better, according to Centre for
Monitoring Indian Economy (CMIE) analyses of the Nomura India Business
Resumption Index or Purchasing Manager’s Indices (PMI). The PMI suggest that
economic activity has resumed to pre-pandemic levels. But the low base effect
and low cash levels with the poor, who spend more and create the mass demand
are unable yet to boost up the economic activities. Though many corporates have
restored salaries, many still are unable to do so or are delaying payments. This
apart, many who lost jobs during the pandemic have not yet got these back.
The
recent labour codes have increased the working hours and are stated to have
done away with many of the workplace safeguards. The wage-led growth is
perceived to being replaced by profits, which in turn creates a smaller base.
The new farm laws, though may open up markets for farmers, are likely to hit
the rural inter-dependent social fibre and ultimately create much smaller base
as many are feared to lose jobs or social support they have.
The
society needs a larger base and the agriculture policy should not be dependent
on the market controlled by companies. The APMC mandis may go through a
process of reform but a parallel “market” may not be in the interest of the
country.
Added
to this are possibilities of opening up the banking sector to the corporate,
wiping out the difference between the lender and borrower – reminiscent of
pre-1969 nationalisation of banks – situation may not be beneficial. More so as
the State Bank of India, Union Bank of India and Indian Overseas Bank have
challenged the bankruptcy resolution of one of the biggest companies and say
that their stake is ten-times larger than what Vijay Mallya owed to them. The
policy makers need to go through the gamut before allowing such a move amid apprehensions
that it would exacerbate the economic crisis.
India’s
is a peculiar economy that is driven by the poor, who despite their low incomes
are the largest purchasers and boost manufacturing, electricity, gas, mining and
many other consumer demands. That is the practical economy and this needs to
guide the country’s decision making. The present post-lockdown recovery is
delicate. It requires participation of all and particularly the marginalised to
decide on a course that would ensure sustained growth. Dialogue to create a New
India is essential for setting the contours. It needs not only a correction but
also prevention from plunging into past mistakes.
The
RBI latest bulletins state the economy is coming out of abyss and with care
could improve in medium term and gradually average the last 30 years’ growth
track of 6.5 to 7 per cent. Credit Suisse supports it by saying that after a
few years of downgrades of Indian economy, “we have reasons to upgrade”. It
also feels that corporate tax cut and new labour codes too should help.
The
gradual larger GST collection is also an indicator that production activities
are gaining momentum. The industry wants concessions on e-invoicing and
relaxations on many other issues to continue. The government’s impatience to
have larger accrual is natural but the situation is fragile and a helpful
attitude towards industry and businesses would be beneficial for the country in
the long run. Many GST provisions are harsh and should be softened if the
country wants to be atmanirbhar (self-reliant).
China has taken such sustained steps for decades to help its entrepreneurship
capture global markets. Indian systems on the contrary work on a ‘blow hot blow
cold’ model and don’t trust the people.
The
country can grow faster if the wealth of the people is not destroyed as some of
the rules such as junking of cars and pollution control methods, high penalties
of Motor Vehicles Act type laws or new number plates have done. Such scrapping
of goods neither helps the economy nor boosts sales. Many prefer not to
purchase such products because they would at the end have to lose to state
laws.
India
has to prepare for the real challenges beyond 2021-22. The new Budget has to
take care of the growth trajectory, soften many laws/taxes, create jobs and demand,
and repose trust in the people. Softer rules and involvement of people is
needed for a better economy.---INFA
(Copyright, India News & Feature
Alliance)
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