Uploaded on September 8, 2020

In Brief

Act now! Tomorrow will be too late!!

Dr Mohammad Manzoor Alam

To begin with, readers are advised to read this piece along with my previous piece on the country’s economic backslide: “Mind the economy, Sir!”

The statistics I talked about in the last article plainly mean that real GDP of over Rs 15-20 lakh crore has been wiped out, which shows that production (goods and services) of that much value is going to be completely destroyed forever, closing down a range of industries from school, transport, tourism, entertainment, hotel, restaurant and construction, to name a few. 

People who had been working in these areas are pushed to the wall. Apologists of government policy are busy delivering pep talk, like hope for revival of the village economy with good monsoon (but the village economy is only 15 per cent of the size of national economy) and that the stock market is showing an upbeat sentiment (but all said and done, the stock market is no sure indicator of the health of real economy).

The problem is that consumption is lying comatose, on ventilator support maybe, if we can call it that. People need “money in the pocket”, a term that suggests your money is not locked into assets or bank accounts. To sustain a certain standard of living, to meet need for food, shelter, health, education etc. as well as to buy things that make life easier like cooler, fan, fridge, bike etc.

That ability to consume has become unsustainable for a rapidly growing number of Indians. If there is no consumption (because there is not enough money to go round) stores and businesses will (and have) close down, and if there are no sales, industries will (and have) close down throwing hundreds of thousands of people out of job. 

Demand is getting destroyed because there is substantial decline in income. Hence, no consumption. A point to remember here is that most of the regeneration of economic activity will come from the states and their public expenditure, which has fallen dangerously. Money due to the states under GST against the Centre has not been paid. The justification is rather untenable, to which one could return later. 

Something has to be done soon to generate work for a modicum of earning to boost demand and consumption. It will be income to be kept “in the pocket”, rather than in banks, because minus that there can be no demand or consumption. The states must be helped to generate resources, first by honouring the pledge on GST. Direct benefit transfer, government taking loans, cautiously tapping into RBI reserves etc. could ease it.

Disinvestment is another way, but has to be approached with caution because selling public assets to private players is not always morally correct. 

As I said earlier, some people are talking about a bright future. That may be misleading. Normalisation (at around 5 per cent of GDP growth) may begin in 2023. As the great economist John Meynard Keynes observed, the time to act is “now”, for “all of us will be dead in the long term.” To prosper in long term, we must survive in the short term.