What does a GDP contraction in FY 2020-21 entail for India?

use of past savings to finance present consumption.

Things have deteriorated on this front. The household savings rate has gone down in the last decade in India.

From 23.6% in 2011-12, it came down to 18.2% in 2018-19, the latest period for which data is available. This means that households have already been dipping into their savings and will have less of a buffer for a rainy day.

A 2013 National Sample Survey Office report (latest available data) shows another grim statistic. Almost 90% of household assets in India are held in the form of either land or buildings. The real estate market is in a bear phase with the current economic disruption. Anybody who is trying to dispose of their properties will find it difficult to get a good price immediately. (See Chart 3)

The Indian economy is characterized by massive inequality. It has more than 400 million workers. Just over 50 million filed income tax returns (ITRS) in Assessment Year (AY) 2018-19.

The gross total income reported by those who filed ITRS shows that these 50 million workers, just 12.5% of the total workforce, had a share of 30% in India’s GDP. Among the 50 million who filed ITRS, income reported by the top 5% had a share of 15% in India’s GDP. This also means that India’s direct tax collections will depend significantly on what happens to the incomes of the richest.

An analysis of income tax data shows that the top 5% tax payers paid almost 90% of income tax in AY 2018-19. This statistic captures the dilemma before the government.

While the poorest are the neediest during a contraction, a big fall in the incomes of the richest will curtail the ability of the government to help the poor. (See Chart 4)

CHART 2 Current perception on income Percentage response Increased Remained same Decreased

60

47.8

50

40 30 20 10

36.1 16.1

Sep 2012

CHART 3 Indians don't have liquid assets Percentage share of different category of assets in the total value of assets of households Land Building All transport Deposits etc Livestock Others equipment & poultry

RURAL

URBAN

CHART 4

Mar 2020

5% of Indians pay 90% of Income Tax in India 52.4

It is not correct to use the term confusion here. There was uncertainty because some states decided to not resume flight operations on May 25. We had discussions with them prior to the announcement. We also issued a central SOP [standard operating procedure] for domestic travel but many (states) went ahead and issued their own guidelines.

The situation has now stabilised...with just six flight cancellations on day two and 445 flight departures ferrying 30,944 passengers and 447 arrival flights with 31,697 passengers.

We did take states on board from day one, contrary to what is being said. Discussions with them started as early as 15th May; when we announced the resumption on 22nd...we decided to give it three more days. There are issues you have to look at; whether the state is willing to accept -- some states were not keen but when they were told economic activity is needed, they changed their mind; are the airports ready? All our airports were ready on the 15th, airlines were ready.

What happened in this was (that) two or three states could not receive flights, they told us very frankly ...so we said you take your time…it is not a question of explaining why but the press became a commentator, it played headlines like “total chaos” and some people said let’s not fly.

What is the chaos? The chaos is on some flights being cancelled. What are the reasons they are cancelled?...because the state government has a problem. Second issue was that the SOPS were issued by the states very late. Now the SOPS are in place. Andhra Pradesh has opened up. West Bengal will on 28 May.

We are prepared for it. We have taken the precautions at airports where you don’t need any human contact...the aircraft is also disinfected. But I keep saying there is a risk in everything. There is a massive conflict between those who want things to desperately open and go about their work and those who pick up any case and make a big thing about it. Airlines are equipped to deal with cases, if they have a positive case and they decide to ground the crew, the airlines will have to pay that price.

I don’t see that happening for some time. International civil aviation traffic is dependent on something completely different, it depends on other countries, international trade and business activity. Will the demand of international traffic continue to be low, what will be the new norm? (Economist) Arvind Panagariya had said even when you had big disruptions earlier trade still picked up globally. I see it picking

You can only do a damage assessment when the resumption has taken place because the damage is on a continuing basis.

I hope not but they are under stress...as a government we have to be cautious and mindful of all that needs to be done on the health front...but equally we also have to be conscious about what is happening to the economy. It’s been two months since airports and airlines have not had any revenue, even parked aircraft on ground cost money.

It is a difficult situation. We have given a large number of measures to mitigate their stress. But I am not sure that the system as it is structured right now is geared to giving any bailout. The business model of airlines is particularly precarious. But the government can’t give billion-dollar bailouts .... That will mean we are giving taxpayer’s money to bail out an individual business.

It goes on. It has to be divested, there is absolutely no question on that. At this stage, to keep anything (running) by subsidy is almost impossible to justify. 100%, I am speaking in my personal capacity, of course.