It is nine months since India declared the world’s most stringent lockdown, with four hours’ notice, causing massive economic disruption. Meanwhile, we have passed 10 million COVID infections in India, the second-highest in the world. And the UK has reported a new strain of COVID that is even more infectious. This has been an altogether strange year. Will 2021 be better? What can we look forward to? What should we worry about?
At the end of the third quarter, the economy is showing a hugely divergent performance. Some sectors are now doing quite well. Pharmaceuticals and chemicals are showing growth on their Year-To-Date numbers. FMCG reached last year’s level in the second quarter and is showing growth in the third quarter, though YTD numbers still lag. The same for two-wheelers. Construction equipment — such as excavators — are showing a huge recovery, with record sales numbers in the last three months, driven by rural demand from sales to individuals. Capital goods are still sluggish with YTD numbers well down on last year, but are now showing some signs of life.
In contrast, travel and tourism, real-estate and construction, and retail, are all still at under half last year, with no one forecasting a full recovery this year. These are high employment sectors, and salaried employment has correspondingly taken a big hit, with potentially longer term effects.
In sum, GDP is expected to fall around 7.5 per cent for this full year. We will bounce back next year on this base effect. But full recovery means getting back to the trend line of growth where we would have been pre-COVID. We will otherwise have two wasted years, something our aspirational population can ill afford. Is this wishful thinking? It may just be possible.
We must start by setting out a clear growth ambition. Yes, we had a $5 trillion by 2024 target, but that is clearly dead. Let us at least aspire to grow 9 per cent for three years, which is what will get us back to our 5 per cent trend line of growth by the time of the next national election in 2024.
So what must we do? The recovery underway is solid, but we need measures to sustain and deepen it. The government can do three things.
First, pay its bills. The most immediate fiscal stimulus possible is to put cash into the economy. Distribute the pending tax refunds, pay the bills of all companies (large and small), pay off the many arbitration awards pending where the government has lost cases, and pay state governments their pending GST dues. All this will run into a few trillion rupees, a per cent or more of GDP, and it will be cash that immediately stimulates the economy. It has the additional merit of simply “advancing” (I hesitate to use that word, as the payments are already long overdue) what will have to be paid later in any case. The government will claim that it has paid over 90 per cent of pending claims, but this is a fudge — the under 10 per cent it hasn’t paid by volume adds up to the overwhelming proportion by value.
Second, invest in public health infrastructure. Some preparation is underway to distribute vaccines, but go much further. Finance state government efforts to build an extensive public health network so we are equipped to handle a possible second wave of the virus. If we demonstrate that we are much more prepared in February and March 2021 than we were in April and May 2020, we will spread confidence instead of despondency. And in all we do, work in partnership with private sector hospitals instead of issuing diktats as earlier.
Third, invest massively in infrastructure. Roads, ports, logistics — there are dozens of projects stuck as funds are not available. The 20 trillion infrastructure pipeline needs to have some cash flow in it. But there is a bigger opportunity. The COVID crisis revealed awful things about living conditions in slums across our cities that we have ignored for too long. Can we put in place the right public-private programme to provide decent, accessible housing, with quick and cheap connectivity into our cities? This could trigger a building boom that would stimulate demand like nothing else.
How will all this be paid for? Announce a huge privatisation programme, and don’t shy away from calling it that. Our current stock market boom says that buyers are ready to invest. But public-sector stock values are still depressed. I think the best way to see them take off is to announce that the government intends to reduce its share-holding to 26 per cent across public-sector banks, steel companies, oil companies, and every manufacturing company and hotel it currently owns. Would simply announcing that intent trigger a big rally in the price of PSU stocks? Let’s try with one or two PSUs and see. We have also seen no movement on the budget announcement of listing LIC — raising questions about the credibility of the entire disinvestment programme.
The government might argue that big reforms prompt big protests — such as those we are witnessing in Delhi on the agricultural reforms. The learning from those protests must surely be that the reforms themselves were right, but the method of doing them needs to be different. We must operate consistent with our democratic institutions. We need discussion papers for public comment, debate in Parliament, hearing out those who would lose out from the reforms, and compromise with the interests of state governments (including those run by the Opposition).
Even worse would be if the government pretends in public (as a few officials seem to be doing) that everything is moving in the right direction and will come right on its own. Unless we act now we will have a stunted recovery. We must use our economic crisis to set some bigger things right. 2021 will be a year to welcome if it returns us to the growth trajectory we deserve.
This article first appeared in the print edition on December 31, 2020, under the title “The growth we deserve”. The writer is co-chairman Forbes Marshall, past president CII, chairman of Centre for Technology Innovation and Economic Research and Ananta Aspen Centre
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