An Economic Disaster Foretold

Context: The reported contraction of the economy is likely an underestimate for reasons of omission and commission

Economic Disaster: Statistics

• GDP contraction: Real quarterly GDP of India contracted by a whopping 23.9% between April-June 2019 and April-June 2020. 

• Negative growth in almost all countries: 

• According to the Organisation for Economic Cooperation and Development, it is the largest contraction among 13 large economies.

• China is the only country which saw positive growth of 3.2% in that period. 

An underestimated disaster: due to omission of statistical information and commission of policies of insidious intent

• The omission of Statistical Information: 

• In the Unorganized sector: According to some estimates, it accounts for 45% of output and 93% of employment of the working population.

• The disproportionate impact of lockdown: Mostly affected non-agricultural unorganised sectors: Three sectors which contracted the most were 

• Construction (at -50.3%), 
• Trade, hotels, transport, communication and services related to broadcasting (at -47%) and 
• Manufacturing (at -39.3%). 

• Challenging nature of data collection decreases the reliability of data since most of the data is based on extrapolation of the benchmarks during the pre-COVID era.

• In Employment: Employment in the last quarter has increased but  are mostly self-employed persons

• Rising Underemployment: Self-employed are although counted underemployed, they are grossly underemployed in term of income earned.

• Hollow agriculture growth: Agricultural growth will not help much in economic recovery, since farm incomes will remain low due to the low purchasing power of rural non- agricultural economy.

• Ill-conceived measures of the Central government have harmed the economy.

• Demonetisation in November 2016, provides the first shock.

• Goods and Services Tax in July 2017 due to its structural complexities.

• Strict lockdown: increased the financial fragility of the banking sector.

• Biased policy measures: supporting the handful of industrialists and neglecting the actual sufferers.

• On the other hand, the government has shrugged off its responsibility to compensate the families of the migrants who died because it has no relevant data.