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Monday, July 04, 2022

A bigger calamity awaits us

It is quite clear that the main indicators of a sound economy are negative. Economic conditions will have an adverse impact on livelihoods and, in conjunction with the pandemic, on lives.

Written by P Chidambaram |
Updated: May 30, 2021 9:56:00 pm
A saree shop operates with precautionary measures in Lakshmi Road, Pune.

If you thought that the second wave of Covid-19 was the worst crisis that you will confront in your lifetime, you may be disappointed. The Covid-19 experience has been bad for the infected person and his/her family. Whether asymptomatic or with mild symptoms and isolated at home or at a Covid care centre or hospitalised or on oxygen or on a ventilator or in an ICU, every infected person has lived through that experience with the fear of death. The Total Fatality Rate (TFR) in May had gone up to 2 per cent and every infected person has prayed that he or she should not be among the dead.

The experience of living in a pandemic-affected world has been equally bad for those who have not been infected. When every day brings bad news about a family member or a friend or an acquaintance or somebody whom one has admired, the question ‘Will my turn come, and when?’ has haunted everyone. The experience has been particularly bad for doctors, nurses, paramedics and hospital attendants. Many have died with their boots on, throwing their families into grief and uncertainty.

The Covid-19 experience has been bad for the Prime Minister, the Union Health Minister, other ministers and bureaucrats. They know that and you know that, so I shall not elaborate.

Worse, is certain

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However, there is one thing about the future that is no longer uncertain. It is about the economic condition of the people of the country. It will be worse than it should be, inequality will increase and the vast majority of the people will be poorer, deeper in debt and unhappy.

The NSO estimates of GDP at constant prices for the three recent years were (in crore):

According to the NSO, in 2019-20, the GDP grew by only 4 per cent (pre-pandemic year), but in 2020-21 it fell by 8 per cent (first pandemic year). We are now in the second pandemic year and have witnessed a new peak of infections in a day (4,14,280) and a new peak of deaths in a day (4,529). The current active cases are 24,23,829. Going forward, in 2021-22, will the GDP grow or be flat or fall? The estimates so far are not encouraging except, of course, the estimate put out by the government. While many still estimate positive growth, some economists are sceptical. The best we can do is to assume zero growth in 2021-22 and hope that the ultimate outcome will be better.

The Lost Output

The GDP’s performance, in quantitative terms, will throw better light on the situation. We lost potential output of roughly Rs 2.8 lakh crore in 2019-20. We lost Rs 11 lakh crore of output (actual) in the first year of the pandemic (2020-21). Assuming zero growth, the GDP at constant prices will remain at Rs 134 lakh crore in 2021-22. Since India should be a growing economy, and assuming potential growth of a modest 5 per cent, there will be a notional loss of output of Rs 6.7 lakh crore that should have been added to the GDP. Those numbers add up to a loss of output of Rs 20 lakh crore in three years.

Such a magnitude of output losses in three years will mean loss of jobs, loss of income/wages, loss of savings, loss of shelter, loss of investment, loss of education, loss of healthcare and many other losses. The CMIE has reported that the unemployment rate on May 26, 2021 was 11.17 per cent — 13.52 per cent (urban) and 10.12 per cent (rural). We lost nearly one crore salaried jobs in 2020-21. In the second wave that has spread to rural areas, the number of jobs in small towns and villages will be hit. Data also indicate that there is large-scale migration from urban to rural areas and an increase of about 90 lakh jobs in the agriculture sector: these cannot be regular jobs in a sector that is already overburdened with workers. Besides, the loss of employment is happening when the Labour Participation Rate has declined (source: CMIE).

More are Poor

Loss of jobs will mean loss of income/wages. The RBI’s bulletin for May 2021 speaks of a ‘demand shock’, reduction of discretionary spending and inventory accumulation. There is evidence in every market street.

Mr Mahesh Vyas, Managing Director of the CMIE, said that 90 per cent of families witnessed reduction in their incomes during the course of the last 13 months. A research report published by Azim Premji University said that households coped with the shock by borrowing and selling assets, and cutting back on food consumption. Another survey by the university showed that poorer households took the largest loans relative to their earnings.

In May 2021, Azim Premji University also reported that an additional 23 crore people had been pushed below the poverty threshold of Rs 375 per day. This has almost completely reversed the number of 27 crore people lifted out of poverty between 2005 and 2015 (source: World Bank).

Altogether, it is quite clear that the main indicators of a sound economy are negative. Economic conditions will have an adverse impact on livelihoods and, in conjunction with the pandemic, on lives. That is a situation which I would describe as a bigger calamity that awaits us in 2021-22.

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