Heed advice, announce rapid relief and stimulus

Democracy feeds on argument, on discussion as to the right way forward. This is the reason why respecting the opinion of others belongs to democracy,” said Richard von Weizsäcker, the German president, under whose term his country got reunited. This philosophy is not new to India as it was ingrained in its culture with the Rig Veda declaring thousands of years ago: “Let noble thoughts come to me from all directions”. However, the import of this philosophy seems to have been lost on the current government, which appears to believe that no consultation is required on the issues of national importance — especially on reviving the economy which is badly mauled by coronavirus.

A survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI) serves as a reality check on all-is-well claims being made by officials and ministers. The survey claimed demand continues to be weak. In fact, 41 per cent of the companies, which participated in the survey, reported that their sales in August 2020 were less than 50 per cent of their sales in August 2019. Another 21 per cent said sales in August 2020 were between 50 and 75 per cent of the sales recorded in August 2019. Fifty-six per cent companies have reported that unlocking of the economy did not improve their order books, while 49 per cent companies reported cash-flow issues. Automobile sales figures show that people don’t have confidence in the economy. While car sales were relatively less impacted with people preferring safe personal transport in the pandemic, two-wheeler sales — that show the aspirational middle class is performing — have plunged by 28.7 per cent and commercial vehicle sales have more than halved reflecting the poor outlook of the economy. India is a consumption-driven and domestic-focused economy. So a weaker demand could have a highly adverse impact on people’s jobs, companies and also exchequer. The Narendra Modi government, however, ignored the advice of several well-known economists to announce financial stimulus to kickstart the Indian economy. Dithering of the government to announce steps to ring-fence the economy from Covid-19 lockdown impact led to a 24 per cent contraction in the GDP in the quarter ended on June 30. Though government-paid economists believe in a V-shaped recovery, most banks and rating agencies have forecast an economic contraction of 10 to 15 per cent. State Bank of India believes that annual production of the country would be 10 per cent less this fiscal year, which means at least 10 per cent of jobs will vanish.

Commenting on the government’s complacency, former RBI governor Raghuram Rajan said, “If you think of the economy as a patient, relief is the sustenance the patient needs while on the sickbed and fighting the disease. Without relief, households skip meals, pull their children out of school and send them to work or beg, pledge their gold to borrow, let EMIs and rent arrears pile up. So by the time the disease is contained, the patient has become a shell of herself.”

In spite of hard facts arguing for a strong stimulus, if the Modi government does not act, history will not be kind to it.