Setho ka Gaon

Sir, in a lot of your recent interviews, you have said that the situation of the Indian Economy is worse than war because, in a war, there is still employment, but India is currently facing high levels of unemployment. But now, with the lockdowns being removed and work starting to gain momentum, what would your forecast be? Will the situation improve on its own due to a rise in employment, or government intervention would be strongly required along with the opening up of the economy?

 

The reason I say that the situation is worse than war is that (of course) there are deaths in war, and now I am being told that the deaths due to covid have exceeded that of the second world war but more than that, supply chains do not get restricted. Production changes for war production, but it does not go down. But in a pandemic, the supply chains are restricted for a long time. Even now, the supply chain disruptions are continuing, especially from China which has become the manufacturing hub of the world. Chips and other electronic goods coming from China are in short supply. Supply disruptions were very acute and long term during the lockdown. Secondly, unemployment takes place because you can’t do any work due to the lockdowns. It is a very virulent virus, so if you move around and meet people, it spreads. The only way to curb it is to prevent people from meeting.

 

This is the seventh virus that we have seen in the past few years. We had SaRS, Ebola and it (Ebola) was very deadly. 50% of those who got the virus were dead. Covid is not as deadly, as only 1% of those who are given the disease have died, but it spreads very rapidly. When there is a lockdown, you can’t go to produce, so the environment improved everywhere. We had people who were able to see the Himalayas from Jalandhar…because the environment was suddenly improving, there was no production, transportation was coming down, so the pollution level was decreasing. So I argue that it is worse than war in economic terms. Now, the question is, will the economy recover on its own because when there is a lockdown, the economy gets impacted, you cannot move around. In my estimate, in my book, only 25% of the existing production could take place. 75% could not, and that’s why my argument is that in Q1 of last year the rate of growth declined by 50% and not 24% as the official data says, because the official data does not take into account the unorganised sector, but it is the unorganised sector that was hit the hardest. Now, when you unlock, of course, production will start, the whole production can be carried on, but the demand is short. A lot of people have lost employment and income. And that is why, if you look at the consumer confidence survey of the RBI, in January 2020, it was at 105, but in January 2021, when the economy was supposed to be recovering, it was still at 55.5. So the consumer confidence was way down. And if consumer confidence is down, consumption cannot be revived easily.

 

Many aspects of production could not revive because they still required most contacts (like) hotels, restaurants, travel, tourism, which is a big chunk of the service sector that requires close contact. Therefore, incomes being down, your consumption will be down, and if consumption is down, your capacity utilisation will be down. And if your capacity utilisation is down, then there will not be a new investment. RBIs capacity utilisation data shows that in January 2020, it was around 70. It was down because before that; also the economy was down, but it came down further around 40 during the peak of the pandemic, and then it rose, but by January 2021, it was still 63. That means it was still 10% below what it was before the pandemic. This means seven the organised sector was 10% below. So the government said that the economy was growing at 1.3% in the January quarter of 2021. That cannot be correct because the organised sector is down by 10%, the unorganised sector is down, and then, of course, the rate of growth of the economy is much less than the government claim of 1.3%. So my argument is that the economy cannot revive only because of the private sector because they are not going to invest more given the capacity utilisation is low because the sales are low because the consumer confidence is down.

 

This is where government intervention becomes necessary. The government needs to pump purchasing power into the hands of people who have lost employment and lost income. So when you say the economy is recovering on “its own”, you mean the private sector and the government need not intervene, then the recovery would be very slow. When the government says V-shaped recovery, it is basing it on the quarterly data, and that too is from the organised sector, not taking into account the unorganised sector. But if you look at the monthly data, in April-May last year. The economy had declined very rapidly due to the lockdown, and the unorganised sector had virtually come to a standstill. Now it started recovering slowly in June-July, so there is a very sharp drop, and then a very gradual rise. So it’s not V-Shaped if you look at it one by one. In my book, I have given the data that if you look at it month by month, it’s more like a Nike sign rather than a rapid v shape recovery. Then the second wave came and hit the economy again, so what had gone up also came down in the month of May-June this year.

 

So the government has to intervene, and that is the lesson from everywhere in the world. In the US, there is a massive intervention, Trump came up with a $1.9 Trillion package and gave up Presidentship with a $900 billion package, then Biden came and talked about another $1.9 Trillion packages and now a $3.5 Trillion package for infrastructure, so somewhere around 10% of GDP was being pumped into hands of the people. That is the way to increase demand, and that is why the US economy has recovered quite rapidly. So in a sense, because of the decline in demand, the private sector cannot pick up on its own and government intervention becomes crucial, but unfortunately, of the Atma Nirbhar package of 22 lakh crores, only 2.5 lakh crore was demanded, which was being pumped into the hands of people who lost employment, which is very tiny, only 1.5 % of the GDP. And that is why our intervention for the poor to raise demand is very weak, and therefore, I argue that our recovery will be very weak.

 

Adding on to that, the Chief Principal Economic advisor said that India will witness double-digit growth in 2020 and 2023. Can this be considered reliable given the government data?

 

So the government data is based entirely on the organised sector data, and the quarterly data is based on very limited organised sector data. The unorganised sector data comes once every five years, and in between, we assume that both the organised and unorganised sectors grow at the same rate, this assumption was true before demonetisation and GST but not after that because they produced a big shock, and the unorganised sector has been declining while the organised sector has been benefiting at their expense and has been rising.

 

So we are proxying a declining trend by a rising trend which is incorrect. I’ve shown in my books that this procedure we use is incorrect and hence over measuring our growth. The rate of growth is much less, and due to the decline of the unorganised sector, demand is not high, and as a result, the rate of growth of the economy fell officially from 8% to 3.1% quarter after quarter for eight quarters. I also argue that if we include the unorganised sector, the Indian economy has entered a recession before the pandemic because the 3.1% represents only the organised sector data and official data uses agriculture as the unorganised sector, which yields you some data and even for the organised sector, the corporate sector which constitutes a large portion of it has data on 300-400 companies which doesn’t include the entire organised sector.

 

Therefore, the data is not reliable, and when the economy faces a shock, there needs to be a change to the methodology of estimating the GDP, which has not been made. In fact, a change was required in the methodology after demonetisation. Hence official data is inaccurate, leading us to rely on alternative sources. Unfortunately, we see the government saying the World Bank, IMF etc., using our data, but they aren’t data collecting agencies and simply use data provided by the government. The credibility of data from these international agencies should also then be questioned.

 

The Indian economy lies at the bottom half when it comes to income distribution, with the lower-middle-income having suffered greatly due to the pandemic, according to the World Bank. We have seen it ourselves, during the second wave, how there was news of stock markets rising and the people’s lives, middle class and lower class, in particular, were becoming increasingly miserable. So do you think covid has just exposed these inequalities, or it has further exacerbated them?

 

Both. Our inequality is much more than the World Bank data says, because the World Bank data is based on the white economy and there is a large black economy according to my estimates, it’s 62% of the GDP for 2012-13, but suppose it is still 62% of GDP, then the inequality arising because of the black economy is not calculated, so our inequality is probably far worse than any other country in the world, worse than Brazil, worse than South Africa. So inequalities are very high, and they know that the unorganised sector, 94% of the workforce, does not have a decent living standard. They live in a very uncivilised manner. 90% of people said, according to one study, they do not have money to buy even one litre of milk. So as soon as the income stops, they start starving. That’s why we saw mass migration to rural areas. So that exposed the living condition of 90% of India, and that’s a way you can measure inequality because the well off sections could stock out food, etc., but other sections could not. So our income distribution is very skewed, and the Delhi socioeconomic surveys have pointed towards that.

 

The DSS showed that 90% of Delhi households were spending less than 25000Rs per month, and Delhi’s per capita income is 2.5 times the national per capita income, and 98% were spending less than 50000 per month. So it’s only the tiny 1.5% who are wealthy, and disparities are very high, and that is why my argument is that poverty is 70-80% and not 22% as said by the government, because the poverty keeps changing. The inequalities are very very high, and the pandemic has amplified these inequalities because it is unorganised that has lost work and has not been able to revive work. The organised sector could revive work because they had better resources. Within the organised sector, some companies were able to perform well because they faced demand, such as the telecom sector, pharmaceutical sector, etc.

 

Therefore, as people say, it was K shaped recovery, but it only refers to the organised sector. But the unorganised sector has not been able to recover, so the inequalities have aggravated far more. Demand has shifted from the unorganised sector to the organised sector. One simple example of that is trade. So people during the pandemic shifted to e-commerce. So instead of buying from their neighbourhood store, they are buying online. So the neighbourhood store is part of the unorganised sector, and e-commerce is part of the unorganised sector, so demand has shifted. So this demand shifting started with demonetisation. It was aggravated by GST and then further aggravated by the pandemic.GST, for instance, I have been quoting the pressure cooker industry, Mr Jagannathan. He said that for five units in the organised sector and 25 units in the unorganised sector, the five units are doing very well, and we are witnessing growth. (This is) because demand has shifted from the unorganised to the organised sector. The unorganised sector is not able to cope with GST. This pattern is being witnessed in every part of the economy where the organised sector is benefitting from the decline of the unorganised sector, and the move to digitise even the unorganised sector led to a further shift in demand.

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