Six years of Modi govt’s rule has led Indian economy to near collapse -Prabhat Patnaik
If the disaster that economy is heading towards is to be avoided, there has to be a massive injection of demand by govt both through transfers and through direct spending on goods and services
The GDP growth in the first quarter (April-June) of 2020 over the first quarter of the previous year has been minus 24 per cent according to preliminary official estimates. But most knowledgeable people believe that even this is an underestimate of the actual contraction brought about by the lockdown. In fact, a former chief statistician of India, Pronab Sen, believes that the actual contraction would have been about 32 per cent. Others put the figure even higher.
But even at the official figure of minus 24 per cent, India’s first quarter contraction has been greater than that of any other major economy of the world. This is hardly surprising since India’s lockdown too, whose main phase coincided precisely with the first quarter, had been the most draconian among all major economies. It not only was announced at four hours’ notice, but also involved shutting down a much larger segment of the economy. Of course, even this draconian lockdown had little effect on the spread of the Coronavirus: India’s daily addition to COVID-19 cases is still climbing, long after the lockdown has been relaxed, while that of almost every other country of the world has started coming down; but that is a separate issue.
To see the implications of this fact let us assume for a moment that with the lifting of the lockdown, employment and income recover completely to equal what they were before the lockdown (which would never really happen since investment always takes some time to recover, but let us momentarily ignore this fact). At this level of output however, there would be a lower level of demand than before the lockdown, because the workers would be skimping on their consumption in order to payback debts. There would therefore be a crisis of over-production because of which output will, for this reason alone, be lower than before the lockdown.
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National Herald, 11 September, 2020, https://www.nationalheraldindia.com/india/six-years-of-modi-govts-rule-has-led-indian-economy-to-near-collapse?fbclid=IwAR16RVQNmruSqgIVt8PvR96F6JnGOEha-UidAIhMGvwMRyEvOCfLIo-WFCg