The latest GDP report pretty much clarifies how badly the Indian economy has been affected. Also, it goes on to prove that the current reforms and measures have had little impact on revival. These issues are further aggravated by the fact that the stimulus packages and reforms are mostly designed around past data from 2008.
The government has mostly overlooked the requirement of near-term demand support, and in place brought in guaranteed credit lines, loans, and structural reforms. This is a serious error on part of the government. To clear things up, a virus analogy can be used, when a patient is in the ICU with a lack of ventilators, there’s no point in giving him rehabilitation arrangements when he’s in dire need of oxygen support. This is pretty much how the Rs 20-trillion package can be regarded as. With such massive income losses and abysmal demand, these packages alone cannot make much impact. Also, India’s rating was recently downgraded by credit rating company Moody’s.
The years 2020 and 2008 are 2 very distinct events, these crises are poles apart with regards to how its impact was, the policy responses are based on 2008 context without giving as much context to the current scenario.
FY20 GDP growth decelerated to 4.2% which marks a downward trend for 3 consecutive years and this data doesn’t even include the impact of the lockdowns as this was only part of the last quarter alone. A rise in NPA which is currently at 9.3% (2.4% in 2008) is expected in the banking sector and various other issues plague the financial system.
Corporate sector performance has gone down significantly, profit shares are in the GDP range 3-4% for the past six years, which is a sharp fall from 7.8% in 2008. MSMEs are facing the brunt of the issue. Household debt is at about 31.3% of GDP and net household financial surplus shares in GDP are only half the 2008 level.
Aggregate demand has gone down by a massive 60% due to job losses, pay cuts, etc. Not to mention this pandemic induced stress in demand mostly voluntarily, as people are on a saving mindset and also the containment measures that are taken, all collectively lead to one conclusion – a poor demand outlook and various other uncertainties.
It is estimated that demand will mostly remain poor, investments will be on the low, and recovery would be a long-drawn-out battle. Direct income support is in dire need.
