Anju Grover for Indian Currents spoke to former Finance Minister
Yashwant Sinha to know implications of the 23.9 % contraction in the GDP and
ways to recover from this jolt. Sinha has squarely blamed the government for
its incompetence, adding that the economy plummeted after demonetisation and
implementation of a faulty GST regime. He said that there is no money in market
and Modi government is bankrupt. He suggested the government should focus on
demand than on supply. In the current climate of demand depression, he further suggested,
the government should monetise the economy by borrowing from the RBI and
properly spend in infrastructural projects in order to create employment.
Yashwant Sinha is a former Indian administrator, politician and a
former Minister of Finance (1990–1991 under Prime Minister Chandra Shekhar and
March 1998 – July 2002 under Prime Minister Atal Bihari Vajpayee and Minister
of External Affairs July 2002 – May 2004). He was a senior leader of the
Bharatiya Janata Party before he quit the party on 21 April 2018.
Q: The Indian economy has shrunk 23.9 per cent
year-on-year in the first quarter (Q1) of 2020, i.e. from April to June – much
worse than market forecasts of an 18.3 per cent drop. This is the biggest
contraction on record in India’s statistical history as the coronavirus-induced
nationwide lockdown aggravated an already terrible economic situation. Why is
the contraction in India so severe?
Yashwant Sinha:
The figure of 23.9 per cent does not include the contraction in the
MSME sector for which figures have not yet been received. If the MSME figures
come, then the contraction would perhaps be between 35 or 40 per cent. In
actual terms, the contraction of 23.9 per cent means a loss of almost Rs. 50
lakh crore in the GDP and that is nearly 25 per cent of the total GDP of Rs. 200
lakh crore. It will ultimately reflect on per capita income. This means that
many people, including those who are above the poverty line, would have been
pushed below the poverty line. Crores of people have lost their livelihood in
the course of the lockdown. Those who have been able to retain their livelihood
are getting much less than what they were getting earlier. The construction
sector, which is the biggest employer in India, has contracted very badly. The
MSME sector, which has the potential to employ people, is facing a crisis
because many units have closed down. There is an overall suffering in the
society as a result of the contraction. By and large, people do not understand
the GDP, but the moment you relate it with their lives, they immediately
understand what it means.
Q: For the first time in India’s recorded
statistical history, all the eight GDP segments, except agriculture, have seen
major contraction in the April-June quarter of 2020. Is lockdown the sole
reason behind contraction?
Yashwant Sinha:
It is now official that India’s economy had been contracted badly
from the year 2018-19. And continuously for eight quarters, it came down from
nearly 8 per cent to 3 per cent. The lockdown was an irrational step. Without
understanding the implications of either coronavirus or the lockdown, Modi
government announced the national lockdown on March 24. The announcement was
done without taking into account the impact that the lockdown would have on
livelihoods, on every walk of life. Lockdown has proved to be a disaster.
Among the G20 countries, India is the one that has suffered the most
in terms of contraction of the GDP. Neither the U.S. nor Brazil has recorded
that kind of contraction in their GDP. Like demonetisation and GST, this
lockdown has badly affected the economy, which already had a delicate health
before the lockdown.
Q: Since quarterly estimates rely on time
series projection and in the absence of actual data, past values tend to
influence upward bias, the contraction is much more than the 23.9 per cent
announced...
Yashwant Sinha
: Yes, you are right. The MSME data comes with a lag of three years in
our system. Quarterly estimates are prepared on the basis of select number of
organised industrial units and agriculture. The agriculture sector has recorded
a decent growth in this quarter, which is a saving grace. But the government
cannot take credit for growth in the agriculture sector. The agriculture growth
is dependent on monsoon and winter rains in India.
Q: The data on agriculture is collected
bi-annually and that on industries annually in India. Service sector data often
is collected once in three to five years. The quarterly estimates are not based
on surveys. It raises doubts on the process of data collection itself.
Yashwant Sinha:
You are right. The process of data collection, compilation and
analysis needs to be improvised. This is the first government that has
interfered with data collection and presentation. Acting chairperson of the
National Statistical Commission and another member were forced to resign
because the government was not ready to publish jobs report. Dressing up with
data has become a habit of the Modi government.
Q: The government has made efforts to address
the problems by making two rounds of announcements in the form of enhanced
rations and front-loading of payments for farmers under the Pradhan Mantri
Kisan Samman Nidhi scheme and a set of guarantees for loans to be made by banks
to the MSMEs and the agricultural sector, besides a host of structural reforms.
But there is a financial crisis in the country, so what can the government do
in it?
Yashwant Sinha:
It is sheer incompetence on the part of the government. For two
years, economists across the board have been saying that problems of the
economy are on the demand side. The government, instead, is tackling problems
of the supply side. The concession in income tax to the big industry or the Rs.
21 lakh crore package are the decisions for the supply side. The government has
done precious little to raise demands in the economy. If proper investments are
made based on borrowing to address the demand side, then there will be some
hope for economy post COVID-19. If those steps are not taken even today, then
there will be no demand, no employment and no industrial expansion. There will
be more economic problems.
Q: In the current climate of demand depression,
as former finance minister, what are your suggestions to the current finance
minister?
Yashwant Sinha:
The government should start making investments in the infrastructure
sector. This is what we did when Mr. Vajpayee was the prime minister and I was
the finance minister. We were facing the crisis post economic sanctions. We had
started investments in national highways, rural roads, telecom, besides housing
and railways to encourage demand. So, investments must be properly done to get
the desired results. During the global financial crisis of 2008, the UPA
government had tried to raise demand by directly putting money into people’s pockets.
And that led to inflation. Make investments in infrastructure in order to
create demand, put money into people’s pockets by creating employment
opportunities through infrastructure. Investment in demands will encourage
consumption. The government should ask RBI to print notes which it should lend
to the government. The government then should spend the money on infrastructure,
which will generate employment and that will reduce the transaction cost in the
economy. Good railway and good airlines will always help in reducing the
transaction cost in the economy.
