Restructuring financial aspects of India has always been a tough challenge. Be it '91 reforms, 2008 global crisis, post demonetization period, or the harsh implementation of Goods and Service Tax. We have faced huge economical crunch in last few years. Undoubtedly, lockdown period during pandemic added to the problems which were already huge before covid-19. This can be quite worrisome for BJPs promise of 5 trillion economy aim till 2024. Will we be able to make this work and turn this pandemic into an opportunity or will this turn into a great deride by the opposition on the pseudo despot. Let me try to be more eloquent here by saying that according to the current reforms by government, 5 trillion economy is unachievable till 2024. So when will it be achieved? 2030?( keeping pre covid GDP growth in regards) Also no. And in this blog, you'll know why.
In May 2019, Mrs Sitharaman along with The PM of India promised India to achieve 5$ trillion economy. This is more than the current economy of Japan and Germany. But with growing unemployment, weak economic growth (Pre Corona pandemic), increasing trading tensions, is it realistic? Well, the pyramid of the Modi 2.0 was based on this promise but rather than being optimistic and looking on the brighter side, shouldn't we look where the growth chart is actually leading towards?
Why was 5$ trillion not possible even before Covid-19 hit the economy?
We have seen BJP promise multi-year high GDP growth rate which unfortunately turned into multi-year lows. Demonetization made us cry. We have seen PM ask for the extension of his harsh step on the economy to stop his guilt inside him to grow. But what happened? 15 lakhs plus jobs down to drain. The claim of getting 31% of black money to RBI got even whiter than before and went back like a boomerang into their account. And after the mass murder of economy, they brought Goods and Service Tax or Goods and "Simple" Tax as Modi ji quoted. But was it really that simple? Implementation of new rules everyday made it even worse for anyone in the country to understand the taxation system. No doubt that GST is better than VAT anyday, but the economy which was already on the verge of windswept would not have been able to stand this grim and strident GST. I remember people forwarding WhatsApp messages in the way they understood or at least believed that they understood the GST. So yes I am not sure about Modi 2.0, but murder of economy 2.0 worked. Maybe.
How Bad Covid-19 Hit The Economy?
Real bad. Very bad. 12crore+ jobs were lost during lockdown. By now, everybody has come across the news that FY20 GDP has come to multi-year lows at 4.2% and Q4FY20 GDP at 3.1% - what people won't be aware of the fact that this 3.1% has the effect of 1-week domestic lockdown - only. Imagine what would be the effect of 2 whole months. If any Bhakts mention about the lockdown period being the major reason for the low GDP, slam that person with the fact that only 7 days of lockdown was taken into account for FY20. The rest is on the failed policies of the government.
Members of the RBI’s Monetary Policy Committee (MPC) have cautioned that the damage caused by Covid-19 and the lockdown could “take years to repair” as the economic situation is “extremely gloomy” and high-frequency indicators suggest a “collapse of demand”, according to the recently released minutes of MPC meeting held on May 22.
Well damage in quite liberal word to use for such job distruction era. This is serious enough to rupture the job market for a very long time. Unless you are Parle-G company employee :-/
Coming to the fiscal package... Sorry, my bad. Coming to the stimulus package to fight corona, our government came out with a total of 20 lakh crore package. Including a large part in form loan and maybe very very less amount in the form of Direct Benifit Transfer. For instance, MSMEs sectors are given a large part in this package. 3 lakh crore worth of package in form of loans. Nitin gadkari ji on very next day said that Centre, State Government and Private Sector owe over Rs 5 Lakh crore in unpaid dues to MSME Sector.
Well from this it can be certainly known that corona "Added" to the economic problems. It never "created" economic problem. But the big question arises is where is the 5$ Trillion promise headed to?
5$ trillion economy after Corona
Let me shed light over how much big the amount we are talking about here. Currently, 1USD=75.96 INR. 5 trillion means 5 lakh crore. Multiplying this amount with 75.96 gives approximately 379 lakh crore in Indian currency. This much amount of economy was promised by BJP till 2024. Well, that's 4 years from now. The budget said that we will end this year with 204 lakh crore. To attain this 379 lakh crore, India needs to grow GDP at 16.5% per year. Current GDP growth has slowed down to 4.2% which is in fact lowest in last 11 years. To consider this economy theoretically, we need almost 4 times of current GDP growth to reach 5 trillion. That's giant growth. Considering jobs lost in this, it might even get tougher.
I might stop you there to come to a conclusion here because clearly speaking, government promised Nomimal GDP and not Real GDP. Supposedly, a country produces 100 bread packets every year with a price of 15 per packet. So the nominal GDP of the country is 1500. In next year, same country produces 120 packets of bread and sell it at 17 per packet. This makes GDP 2040. This is nominal GDP. To find the real GDP, multiply the number of bread packets prepared by country in 2nd year and taking the price of 1st year which will give you 1800. The real GDP. So 5 trillion economy in our country is possible theoretically but not practically where we face such an economical disaster every now and then.
How to actually achieve this amount?
This question was already answered theoretically in the previous question. We went a step ahead and contacted Dr. Arvind Panagariya. He is an Indian-American economist who served as the first vice chairman of the government of India's NITI Aayog. Currently, a professor of economics at Columbia University. He was a chief economist at Asian Development Bank. He has also worked at World Bank, IMF and World Trade Organization as well. In short, a gem in matter of economics. He said that India was the World's Largest Economy in the first millennium and second largest until as late as the beginning of 19th century. India can easily attain a GDP growth of 8% through out the year. According to Dr. Panagariya, India's problem is it fails to create vast number of jobs for so many people. Well here he is not talking about "pakode becho" jobs. The jobs that can employe them gainfully and provide them good wages. Critics of modi government claims of 6.1% of unemployment estimated by national survey office in its periodic labour force survey (PLFS). Well this is not a huge figure only if rest 94% people get decent wages. Reality is large number of people in India are given low productivity/low wage employments. According to the same PLFS report, 44% of total work force or 205 million are in agriculture sector. Rest 56% are in industrial sector or services. India has a total of 146 million land holdings. From this over 70 million land holding are less than a half hectare. If we take average of this 70 million land holding which is less than half a hectare, on average it works out to a quarter of hectare. This results into low productivity and low outcome and directly affects the economical prospects. This 70 million lands on average earns 41000 every year. For a family of 5, it gives less than Rs 23 per day per person. Even our modest economy basic line provides Rs 38 per day per person. Well this is actually scary. Dr. Panagariya also mentioned that India needs to raise number of employments by increasing number of medium and small scale industries. He said that significant presence of medium and large Industries in any sector is the key to productivity.
In the end he said, we should increase investments in medium and large scaled firms in the labour intensive sectors. The emergence in medium and large firms may somehow get the labours out of micro and small interprises. That will force Small and micro enterprises to improve their wages for labours. Following to this, such labours pushed by small firms might be gainfully employed by medium and large scale firms and also pay better wages than they are being paid currently.
This being said, the point here is higher and well paid wages employment will help us reach the 5$ trillion economy. I'd really like to thank Dr. Arvind Panagariya for sharing his narratives to us. Also my man, Dev vora is a gem. Thank you for reading.
The following blog is written by Thacker Shubham.
Website : www.amanwithnoideas.com