An Economic Disaster Foretold

The Hindu     16th September 2020     Save    

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

Economic Disaster: Statistics

  • 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.