Editorial

GDP comorbidity

By Nagaland Post | Publish Date: 10/14/2020 1:05:06 PM IST

 Just as India’s economy was starting to look up at the beginning of 2020, the rising tide gave way to the COVID-19 shock. The pandemic has shaken the foundations of the global economy which is the most unprecedented shock in post-war history. The International Monetary Fund (IMF) slashed the growth forecast for India for the second time this year saying that the country’s economy will contract 10.3% in FY21, the third steepest decline after Spain and Italy, and the sharpest fall among emerging markets and developing countries.In its latest report on the global economy, the IMF forecasts that India’s Gross Domestic Product(GDP) will plunge 10.3 percent this fiscal year ending on March 31, 2021, the biggest contraction since the country became independent in 1947. This represents a sharp downwards revision from the IMF’s previous prediction in June when it said output would shrink 4.5 percent. In April it was expecting growth of 1.9 percent. Despite the government in Delhi continuing to deny the reality and instead indulging in rhetoric, India’s GDP of Rs 203 lakh crore in March 2020 will, therefore, decline to Rs 183 lakh crore on March 31, 2021. At an exchange rate of Rs 75 per dollar, India’s GDP in March 2021 will thus be $2.4 trillion. However, the IMF expects India to grow 8.8 percent next year. Obviously, some of the damage will be long-lasting. Assuming that India’s economy grows at 7% between 2022 and 2024, the permanent loss would be 10%, according to a recent report from Mumbai-based credit ratings agency CRISIL. “To catch-up would require average GDP growth to surge to 11% over the next three fiscals, something that has never happened before.”There are several hurdles the economy will encounter. First, a fall in the value for the rupee against the dollar, reducing India’s dollar-denominated GDP. Second, tepid export growth, worsening India’s trade deficit. Third, stalled privatisation of listed Public Sector Units (PSUs), robbing them off greater efficiencies. Fourth, a lingering Covid-19 pandemic, stalling the resumption of full economic activity. Fifth, frequent state assembly election cycles, leading to populist policies, not necessarily sensible, reformist economic policies. Despite these caveats, the Indian economy will move forward haltingly but stubbornly. When Prime Minister Narendra Modi took office on May 26, 2014, he inherited a broken economy. GDP growth in 2013-14 had plunged to 4.7%. Non-performing assets (NPAs) for banks had risen alarmingly. Worse, they had been hidden in bank balance sheets by evergreening - rolling over bad old loans with new loans .While the Modi government inherited a toxic banking sector, it hasn’t covered itself in glory either. It has erred by suspending the Insolvency and Bankruptcy Code (IBC) for six months till September 25 on account of the pandemic. Momentum has been lost. The second error was in the hastily implemented GST which with multiple rates. has added more problems than solutions. Luxury goods and some food items are heavily taxed at 28% whereas a 0% tax would have spurred more spending and GDP growth. The third and most serious error by the Modi government is not providing a credible financial stimulus to the economy. It wants the cash-strapped private sector to invest, but won’t invest itself. India has to set its GDP house in order before dreaming of overtaking China and Modi will have work on the basics.

Launched on December 3,1990. Nagaland Post is the first and highest circulated newspaper of Nagaland state. Nagaland Post is also the first newspaper in Nagaland to be published in multi-colour.

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