Bharat Jhunjhunwala
The Gross Domestic Product (GDP) shrank by 23.9 per cent in the first quarter of this financial year. GDP is a measure of the total amount of production made or income earned by the country. In contrast, former professor of Jawaharlal University Arun Kumar has assessed that there was a 75 percent decline in April 2020, followed by 60 and 40 per cent decline in May and June in GDP leading to a 58 per cent decline in the quarter. I think Arun Kumar’s estimates of decline are on the higher side; yet, the decline must be more than the 23.9 per cent said by the government.
The reason for this huge difference in the two estimates is that GDP is basically a guess estimate. It is virtually impossible to measure the production done by every tea shop and farmer. Therefore, statisticians make estimates based on selected data. Selection of data is at their discretion. The data for the first quarter was mostly unavailable due to the lockdown. Therefore, statisticians had to perforce rely on the data that were available. They appear to have relied on the results of corporations, GST collections, sale of fuel oil, rail travels and the like. In this quarter, only a small number of large corporations did well – private electricity distribution companies, mobile telephony, e-commerce and the like. They have announced their results. Businesses not doing well have lessened their frequently of announcing their results. Therefore, these results are unduly influenced by the select corporations. Further, the unorganised sector is entirely left out of this data. Some 95 per cent of the employment and 45 per cent of the GDP comes from this sector. This includes kirana shops, tailors, taxi operators, small schools and doctors. These businesses were worst hit by the lockdown. This hit has not been captured by the government GDP figures.
The government has estimated a 3.4 per cent growth in the agriculture. Arun Kumar says that the arrivals in the mandi were down by 50 per cent in April. I have had to myself sell lemons at as less as `22 per kilo, against the earlier rate of `30-40 per kilo due to the lack of demand in the market. I do not think there is any chance of growth in agriculture because of the decline in the prices. Agriculture is not likely to pull the economy even if we assume that it grew at 3.4 per cent because the share of agriculture in the nation’s GDP is only 14 per cent. Thus, a 3.4 per cent growth in agriculture translates into a paltry 0.24 per cent growth in the GDP.
The situation of Medium Small and Micro Enterprises (MSMEs) is no better. The total credit given by the banks to them in March was `11.49 lakh crore. This fell in April and May and then inched back to `11.32 lakh crore in June. The total credit extended in June was less than that was extended in March despite the `3 lakh crore additional lending package announced by the government. This means that the banks have recycled the regular loans and shown them as fresh landing under the package.
The loans given for vehicles have shown the lowest decline of 0.5 percent between March and July 2020 according to RBI. This too should not be considered as an indicator of stability. The property sector has similarly shown a nominal decline of 0.7 per cent in the loans extended. But I know of builders who are in great difficulty due to absence of demand and they have borrowed to tide over the problems. These loans are like oxygen given to a patient while waiting for surgery. The overall situation is grim.
The International Monetary Fund has suggested that the government push exports and integrate our economy even more deeply with the world economy to overcome the present crisis. This is exactly what we have been doing for the last six years and our GDP has been falling in the last four of these six years. We must think again.
Globalisation has turned on its head today. Indian businessmen are taking their money to countries like China where there is the freedom to pollute the environment, where labour laws are virtually non-existent and where bureaucracy is corrupt but helpful. They, along with Multinational Corporations, are producing goods in China and importing them into India. This is beneficial for them because they can produce cheap goods and destroy those Indian businesspersons who try to produce in India. This is also beneficial for those consumers like the government employees who have a secure income, because they get cheap goods. However, this is harmful to the domestic industries that close down due to cheap imports and workers who lose their jobs. This is also harmful for the government because it gets less of revenues because of the closing down of domestic businesses.
The solution is to increase import duties substantially. The result will be that Indian businesspersons and MNCs will not be able to import goods manufactured by them in China and sell in India.
The increase in businesses in India will lead to the generation of employment, an increase in demand in the market, and encourage businesses to make more investments. However, those having secured incomes like the government employees will be losers. They will have to buy more expensive Made in India bulbs. Indeed, the general public will also not get cheaper Made in China bulbs. However, their loss will be ten times compensated by the increase in incomes due to the generation of jobs.
The choice before the government is to either secure the interests of MNCs and Indian business persons manufacturing in China and government employees; or to secure GDP growth, jobs and more revenues. The government should wholly reject the advice of IMF and embrace protectionism.
The writer is formerly Professor of Economics at IIM Bangalore.