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Thursday, August 18, 2022

Do you see green shoots?

If the Finance Ministry is so sanguine, why does it not predict positive GDP growth in 2020-21? The MoF dare not!

Written by P Chidambaram
Updated: June 28, 2020 11:53:29 am
College Street, kolkata, covid lockdown, unlock 1, coronavirus A bookseller waits for customers at College Street in Kolkata.

Some have perfect vision. Some are better, they are seers, they can see things that ordinary mortals cannot. Some are even better, they are sages, they can foretell the future that is beyond the grasp of average people.

Let me report what I see around me and you can compare it with what you see around you. In a big city like Chennai, everything is open, then everything is suddenly closed. It is a bewildering swing between Lockdown and Unlockdown and Lockdown, no one knows what will be open or closed, or when. The rich and the upper middle class stay home, falling back upon their wealth or savings, and praying that the nightmare will go away by…. nobody knows when. The lower middle class play hide and seek with their workplaces, venture out only if absolutely necessary, and return quickly to their homes. The prevailing emotion is fear.

It is the poor, especially the shopkeeper, the self-employed auto or taxi driver, and the tradesman like carpenter, plumber or electrician, who perforce must try their luck, go out in search of work, and return home with earnings that are less than 50 per cent of usual earnings. The prevailing emotion is frustration.

The very poor are devastated. They had migrated for work, they have migrated back to their villages, and the only two things that sustain them are the ration under the National Food Security Scheme (many state governments have made it free) and MGNREGA work, both initiatives of the UPA government. Many, however, are still dependent upon the charity of NGOs. The prevailing emotions are disgust with the governments and resignation to fate.

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In small towns everything is open — the bazaar, the shops, the service providers.

Except in the bazaar for vegetables, fruit, meat and fish, there are few customers for footwear, clothing, barber’s services, etc.

Agriculture Shines…

Rural India is completely open. Very few wear masks. There has been a bountiful harvest, the Rabi crop has been procured, the sowing season has started, and there are happy faces. People are buying essential items and staples, but not beyond that. Packaged food items and diet and nutrition supplements are popular. The rich farmers are buying tractors and agricultural equipment. Sale of two-wheelers and small cars (not other cars) has picked up smartly. The pent-up demand for commercial vehicles has spurred CV sales, but the relentless increase in petrol and diesel prices is a dampener.


Supply chains are being restored, though there are some bottlenecks like GST.

Agriculture will do well in 2020-21. Doing well means, at best 4 per cent growth. That will contribute 0.60 per cent to overall GDP growth.

…. But Gloom Elsewhere

Everything else is surrounded by gloom and uncertainty. MSMEs feel they have been abandoned by the government. The Finance Minister promised


Rs 3 lakh crore to 45 lakh MSMEs (out of 10 crore MSMEs) as a credit guarantee. Assuming an NPA level of 10 per cent, that works out to Rs 30 lakh crore of lending. Only Rs 70,000 crore have been sanctioned so far and only Rs 35,000 crore have been disbursed. Thousands of MSMEs have closed down and lakhs of jobs have been lost — maybe forever.

Travel, tourism, airlines, bus transport, hospitality, hotel industry, consumer durables, construction, exports, etc. are languishing. Many of them will suffer huge losses running into crores of rupees and some will file for bankruptcy. Millions of direct and indirect jobs will perish with the failed businesses. Many companies have announced debt reduction and sharp cuts in capital expenditure.

Demand is still abysmally low, hitting the Manufacturing and Services sectors very hard. People are hoarding cash. Year-on-year, currency in circulation has risen 14 per cent. The reasons are two: one, fear of Covid infection and the cost of hospitalisation. The other is the looming threat of China. Both Covid fear and China threat will drag India into a recession in 2020-21, the first in 42 years. It could be up to -5 per cent. A recession will mean more unemployment (except rural, mostly manual, work) and falling incomes/wages. Per capita income is expected to fall by 10-12 per cent. The people at the margins of the poverty line (just above the bottom 30 per cent) will be pushed into poverty.

Still Contracting

The Ministry of Finance sees green shoots in wheat procurement (382 LMT), kharif sowing (13.13 million ha), fertiliser sales and foreign exchange reserves (USD 507 billion). The rest are data about lower contraction in Manufacturing and Services, though it has conceded that y-o-y growth is negative. Y-o-Y, Manufacturing has contracted by 27.4 per cent and Services by 5.4 per cent, consumption of electricity by 12.5 per cent, consumption of petroleum products by 23.2 per cent and consumption of coal by 4 per cent. Railway freight traffic is lower than last year. Different sectors of the economy have reported huge job losses.

Almost alone, the MoF predicts a V-shaped recovery. Down 5 per cent in 2020-21 and up 5 per cent in 2021-22 may appear to be a recovery, but it is not. Only when total output (GDP) exceeds the total output of 2019-20 will that be considered a recovery, and that may not happen until 2022-23. If the MoF is so sanguine, why does it not predict positive GDP growth in 2020-21? The MoF dare not!

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First published on: 28-06-2020 at 04:00:24 am
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