The Financial Literacy Cell
- 23.9% GDP - Accept it, Fight it, Defeat it
Updated: Sep 15, 2020
When India was fast moving towards its trajectory path of becoming a 5 trillion economy, our roller coaster ride first met with the economic slowdown and later with the bouncer of coronavirus. Since then we have been struggling and surviving the journey. As per the recent data revealed by the Ministry of Statistics and Programme Implementation, India's gross domestic product (GDP) growth for the first quarter (ended June 30) of the financial year 2020-21 suffered the largest quarterly slump of 23.9%.
Simply put, it means that the Indian economy has produced 23.9% fewer goods and services as compared to the respective quarter last year. Precisely, this -23.9 % implies a proportionate decline in per capita income, greater inequality in the economy, a rise in the number of people below the poverty line, and the unemployment rate. On account of the suspension of economic activities due to nationwide lockdown, negative growth was expected but the magnitude of the downfall was largely unanticipated. Moreover, these figures do not take into consideration the impact generated in the informal sector. Thereby, the actual impact is even bigger.
The worst affected sectors were construction (–50%), trade, hotels, and other services (–47%), manufacturing (–39%), and mining (–23%). These sectors create a maximum of new jobs in the country. It's only the agriculture sector which has seen a silver lining in the form of 3.4 % growth during the previous quarter. Of late, COVID-19 has assumed the form of a health cum economic pandemic for India.
As per the expenditure approach, GDP is generated from four engines of growth.
Amidst the coronavirus induced lockdown, private consumption and private investment have fallen by 27% and 50% respectively. When incomes fall sharply, private individuals cut back consumption. When private consumption falls sharply, businesses stop investing. The uncertainty and the lack of investor confidence have also majorly contributed to the fall of I. However, net exports owing to the international travel restrictions and the government expenditure have although increased. When the demand from C and I fell by Rs 10,64,803 crore, the government’s spending has increased by just Rs 68,387 crore. Thereby, the rise is nowhere near enough to compensate for the loss of demand (power) in other driving sectors (engines) of the economy. It is the unbreakable damage caused to labor, capital, and productivity which has led to such consequences.
However, to change the present situation and for the economy to make a dynamic comeback, it is first important to accept the present state of affairs. The country cannot afford to avoid such crucial figures and instead pay heed to petty everyday dramas. This is an issue that needs utmost attention and not cover-up by different stakeholders. Its time for discussion, deliberations, brainstorming, innovation, action, and performance.
As rightly said, "A smooth sea never trained a skilled sailor." In spite of hurdles there exists immense potential and prospects for the Indian economy. Amidst this pandemic, India has emerged as the most preferable destination for foreign investments owing to the lost glory of China. The agriculture sector is getting robust and prices of crude oil have dashed, paving the way to the enormous success of "Make in India". The spirit of Aatmanirbhar Bharat Abhiyan has been received wholeheartedly by the general public. Our performance in terms of many indices like innovation, ease of doing business has improved. These factors will largely enable India to add additional brownie points in its upcoming economic performance.
It is time for the government to step up and allocate more for the MNREGA and make more direct transfers to the bank account of the people until the situation normalises. These transfers and employment-generating schemes will bring in more liquidity in the market. Accelerating infrastructure development is a double-edged weapon that will generate employment and at the same time will contribute to the progress of our country. There should be speedy sanctioning of the loan applications at the ground level.
These are some steps that the government can take. But how can we as an individual help our economy in speeding its recovery path? The answer is simple. As a responsible citizen, we should support our local businesses and MSMEs. Do not forget that your small placed order from a local store would bring tons of happiness to the local vendor's family. Let's make India a leader in the global supply chain. In addition to it, develop an entrepreneurial spirit within yourselves and give wings to your creative minds. Today, let us all pledge to support our local products and promote innovation. Let's resolve to act as a torchbearer for the recovery journey ahead.
By Anjali Lalchandani