Government officials stick to the version that national income will grow in 2020-21, even bizarrely claiming that it will grow by 1-2 per cent in the April-June quarter, two-thirds of which period will have been under the lockdown. It is now amply clear to any real-world observer that the economy will not grow in 2020-21, but shrink; the question is to assess: by how much. This assessment may be useful in order to gauge the extent of suffering of people and the damage to the nation’s productive capacity, and accordingly to assess how much the Government should spend to alleviate that suffering and revive productive capacity.
Why does the Government persist in unreal optimistic predictions of growth? Because it carries out the above two steps backwards: it first assesses how much it can spend without angering foreign investors, then understates the economic loss so as to justify such a low increase in Government expenditure. Since the Government has decided (in the economic packages of March 27 and May 12) to make only a tiny increase in expenditure, its official economists must claim that GDP growth will remain positive, only slowing in one quarter, followed by a rapid recovery to earlier levels.
The Prime Minister’s speech of May 12
On May 12, the Prime Minister announced what he called a Rs 20 lakh crore (Rs 20 trillion) package, amounting to 10 per cent of GDP. At first glance, the figure seems huge. The media have by and large swallowed the Government claims about the size of the package, and inundated us with details of sundry schemes and slogans.
The package, however, turns out to be empty. For three days the Finance Minister has held press conferences reading out laundry lists of assorted schemes, virtually devoid of actual Government expenditure. There is little point in our discussing the details; they merely confirm that the Government’s response to the biggest economic crisis in post-1947 India will rank among the most meagre in the world. Instead of spending in order to provide services and to compensate people for the effects of the lockdown, most of the measures announced relate to making more credit available to different sections (which will flow to big business, if the past is any guide). The burden of even such paltry measures has thus been thrown onto the shoulders of the public sector banks. However, even before Covid-19, big businesses were not interested in investing, for lack of demand. Banks have no interest in lending to medium, small and micro units. And for small and micro-units, loans are no solution for the devastating loss suffered due to the lockdown: this is akin to knocking down someone’s home and offering her/him a loan to re-construct it. (more…)
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