Demolition of Indian economy during covid-19

As per the reports, on this Saturday SBI arranged a conference of banks, during that conference Governor of the RBI shaktikanta Das uttered that it is so uncertain for the demand conditions to become normalize, further he question it this called confidence-building or green shoots.

Reports stated that here by “uncertain” he meant “a string of uncertainties—from supply chains, state of banks, demand, to the pandemic effects on future growth”, however, the government is clueless regarding all the uncertainties.

In addition to this Finance Minister has said that September Data shows no incredible signs of Economic growth towards business as usual.

He mentioned that since 2015, I have written several times (even while the GDP on a statistically upgraded base year price index grew at 8%) to predict that a tailspin had begun due to the clueless economic policy of the Ministry of Finance. Therefore in a year, gradually growth rate of GDP started declining. As even before the pandemic outbreak in India; the GDP had fallen to 3.0% in February, even less than the rate of growth of 3.5%, mockingly referred to as the Hindu rate of growth Officially, Covid-19 arrived thereafter, and it was announced on 25 March by Prime Minister Narendra Modi.

India's GDP growth dips to 3.1% in January-March 2020; 11-year-low of 4.2%  in 2019-20 | Deccan Herald

Various feature writers said, that government may be able to cover up the economic and financial downfall from April 2015 to March 2020 and later on blame the pandemic for declination of GDP fall rate. But at the moment the lockdown is getting diluted, the Finance Minister has started spreading “green shoots of growth” spin, and in this PM was convinced to join. However, the economic graph does not manifest something and the judgment based on statistical evidence shows that the existence of all the shoots are brown rather than green.

Last year in 2019 after the re-election of BJP to power, Prime Minister had mentioned that India’s GDP will double by 2024 to $5, but at that time Minister of finance had mentioned that this means that GDP will have growth at 14.4% per year, in consideration that during that time the GDP growth rate had dropped to 3.4% per year so on what basis government has decided to make the GDP rate grow from 3.4% to 14.4 % per year and to maintain that pace for continuous 5 year that is till 2024.

According to official reports they mentioned some example to explain spin and truth:

Spin 1: Consumption of petroleum products increased by 47% from 99.37 lakh metric tonnes in April to 146.46 lakh metric tonnes in May, thus moderating it’s year-on-year (y-o-y) contraction from (-)45.8% to (-)23.2% across the two months.

Spin 2: Latest data indicates Kharif sowing at a 104.3% higher than the previous year’s acreage with Rabi procurement in full flow in respect of oilseeds, pulses, and wheat, benefiting from the bumper harvest.

Spin3: Electricity consumption saw the lowering of the growth rates from (-)24% in April to (-)15.2% in May to (-)11.3% in June.

Spin 4: Sustaining the momentum in economic activity, railway freight traffic improved by 26% in May (8.26 crore tonnes) over that in April 2020 (6.54 crore tonnes). Pray, freight carrying what?

Spin 5: In support, India’s forex reserves at USD 505.6 billion as on 19 June, continued to provide a crucial cushion to external shocks on the back of higher FDI, portfolio flows, and low oil prices. Was that our achievement by new policies? FDI and portfolio in India are largely “round tripping” and the forex reserves rose because exports declined faster than imports.

Spin 6: The government was able to correctly anticipate the economic downturn following the outbreak of the pandemic.

Spin 7: The government of India on its part executed a “well laid out” strategy wherein it imposed lockdown to allow states to ramp-up their health and testing infrastructure while implementing.

Spin 8: The next step was to convert the pandemic situation into an opportunity of taking the economy to newer heights. These reforms will create a more competitive and vibrant agricultural sector, bringing prosperity to the majority of the population in rural areas and contributing to the growth of the Indian economy in the long term.

Spin 9: Economic growth of pre-COVID times, as and when restored through fuller unlocking of the economy, will heavily lean on the reforms undertaken today to enhance its potential tomorrow.

Further after digesting these spins, here they specified some truth of the document

Truth 1: Before Covid-19, IIP declined by a record of 55.5% in April 2020. The record contraction in April was more than three times as compared to a (-)18.3% growth in March, with several firms reporting nil production. Post-Covid de-growth was uniform across all use-based categories, demonstrating the severity of the lockdown induced supply shock.

Truth 2: Eight Core Industries also registered sharply negative (-)38.1% growth in April 2020 as compared to 5.2% in April 2019. All eight industries experienced a broad-based decline with the sharpest contractions in cement [(-)86%)] and steel [(-)83.9%]. The contraction in eight core industries, however, moderated in May to (-)23.4% with fertilizer production increasing by 7.5% in May 2020 over May 2019.

Truth 3: Contraction in industrial output in April 2020 can be attributed the most to basic metals, petroleum products, chemicals, motor vehicles, and machinery production. In the manufacturing sector, 12 sub-sectors contributed to approximately 40% of contraction in industrial output. These are motor vehicles, furniture, machinery, electrical equipment, computers and electronics, fabricated metal products, wood, paper, leather, textiles, readymade garments, and beverages and tobacco. Sectors like motor vehicles, machinery, and fabricated metal products are seen to be consistently negative contributors to industrial growth both in pre and post COVID months.

Truth 4: Falling production of capital goods, and infrastructure and construction goods (20% contribution to de-growth) also indicated a slump in investment demand.

Truth 5: Purchasing Managers Index (PMI) manufacturing for April 2020 also recorded its sharpest deterioration to 27.4, spread across all components. PMI services also plunged to an all-time low of 5.4.

Truth 6: The production of consumer durables fell by a sharp 95.7% (y-o-y) in April 2020, after declining by 36.5% in March. According to RBI’s Consumer Confidence survey, consumer sentiment sank in May 2020, with the current situation index (CSI) touching a historic low of 63.7 and the one year ahead of future expectations index (FEI) also recording a sharp fall of 17.3 units to reach 97.9.

Truth 7: With the forecast of a normal monsoon at 102% of Long-period Average (LPA), agriculture is set to cushion the shock of the COVID pandemic on the Indian economy in 2020-21.

Truth 8: Due to terrible y-o-y fall of 60.2% in April 2020, India’s merchandise exports declined by a lower 36.5% in May. Garment industry exports have suffered in both pre and post Covid-19 scenarios, exports of electronic goods have consistently deteriorated since February, possibly reflecting an additional trade impact of the earlier China coronavirus outbreak.

Truth 9: India’s real GDP growth rate was 4.2% in 2019-20 as per the provisional estimates released by the National Statistical Office, compared to 6.1% recorded in the previous year. THE official GDP for the year is estimated at Rs. 203.4 lakh crore, lower as compared to the Budget Estimates. This may be attributed to lower growth in Q4 of 2019-20 due to the global spread of Covid-19 since January 2020.

Truth 10: Real GDP growth rate in Q4 of 2019-20 was at 3.1%, a 2.6 percentage point drop from the growth rate in 2018-19. Overall inflation as measured by the GDP deflator for 2019-20 works out at 2.9%, lower than 4.6% in 2018-19. The growth of real Gross Value Added (GVA) at basic prices was at 3.9% in 2019-20, as compared to 6.0% in 2018-19. Real GVA growth has declined in almost all sectors except agriculture and allied; mining and quarrying; and public administration, defence, and other services in 2019-20.0

SO WHERE ARE THE GREEN SHOOTS?

According to the document stated by TOI says, green shoots [GS] of economic revival have emerged in May and June in four areas.

GS 1: Electricity consumption saw a lower contraction in growth rates from (-)24% in April to (-)15.2% in May to (-)11.3% in June (till 28 June). In June, electricity consumption has continuously improved with year on year contraction declining from (-)15.6% in the first half of June to (-)7% in the second half of June (as on 28 June).

GS 2: Total assessable value of e-way bills picked up by a massive 130% in May 2020, though lower than the previous year and pre-lockdown levels. The value of e-way bills generated between 1 and 28 June stood at Rs. 11.4 lakh crore.

GS 3: Year-on-year contraction in consumption growth of petroleum products was much smaller at (-)23.2% in May as against (-)45.7% in April. Something to celebrate as green shoots?

GS 4: Railway freight traffic improved by 26% in May (8.26 crore tonnes) over April (6.54 crore tonnes), though still lower than previous year levels.

Conclusion: It is better to shoot green than expect green shoots.

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