Citizens, brace yourselves for an alarming 2020-21 first quarter GDP report on Aug 31

Citizens, brace yourselves for an alarming 2020-21 first quarter GDP report on Aug 31 ^Featured

Super User 27 August 2020

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A 15-20 % dip in the organised sector GDP in the first quarter of 2020-21, as envisaged by Jairam Ramesh, will be catastrophic.

In an article written in June end, I had written on how several noted economists were looking at the worsening economic situation in the country and were predicting not just a recession but a depression. They had predicted a Year-on-Year (YoY) GDP contraction between 15 and 30 per cent. Ever since that, the situation has barely improved. A CMIE report in August showed how nearly 1.9 crore salaried Indians, who make up less than 20 per cent of the country’s working population, lost their jobs ever since the Coronavirus-induced lockdown began in the end of March. The economists, I had spoken to for the article mentioned above, had talked extensively about the unorganised sector which generates almost half of the national output and employs almost 93 per cent of the country’s workforce. Now that August 31 draws close, the day on which economic growth or degrowth figures for the last (April to June) quarter will be officially out, it makes sense to revisit the premise.

Senior Congress leader and former Union Minister Jairam Ramesh, on August 27, wrote on Twitter: “On Aug 31st, GDP data for Apr-Jun '20 will be out. It‘ll definitely underestimate contraction because data of the informal sector (decimated during the lockdown) will not be taken into account. So, if a 15-20% dip is announced, we can safely assume that it is a 25-30% contraction.”

Ramesh’s statement is totally in sync with the piece mentioned above. If this is the state of the organized sector, one shudders to think what the reality is for the entrepreneurs and workers in the unorganized sectors. Data from core sector demand shows a fall in all eight. So does that of electricity. With rising unemployment and inflation, people have less and less cash to be able to afford goods and services. This reality can’t be hidden by window-dressing data.

Unless the government wakes up to the reality and infuses real money into the economy instead of credit by transferring to rural and urban poor cash in the lines of Rahul Gandhi-proposed NYAY scheme and by extending financial support to entrepreneurs (not loans), improvement is extremely unlikely even in the next three quarters (July to September, October to December and January, 2021 to March, 2021). Without cash in hand, there will be no uptick in consumption. Without consumption, demand can’t grow. Without demand, no new aggregate investment will be forthcoming that will generate new jobs, expand capacities and galvanise the supply-chain mechanisms.

A 15-20 per cent dip in the organised sector GDP in the first quarter of 2020-21, as envisaged by Jairam Ramesh, will be catastrophic. Though Ramesh has been conservative and non-alarmist in stating that it will indicate that the economy has shrunk by 25-30 per cent, one is afraid the situation could be much worse than that.