Event 1- On 25th September 2014, Prime minister Narendra Modi launched the “Make in India” program by stating “Look East, Link west”.
Event 2- On 1st February 2020, the Finance minister about to present the Union Budget; So, on 9th January 2020 Indian prime minister announced his dream to make a 5 trillion-dollar economy after talking to economists and other business tycoons.
Event 3- On 12th May 2020, PM Modi gave a speech amid the Pandemic and Lockdown scenario where he focused on making “AatmaNirbhar Bharat” or “Self-Reliant India.” Rs 20 Lakh Crore was announced for reviving the Indian economy in the post-lock-down scenario.
Keeping Focus on the young segment of India, potential in MSMEs (Micro Small and Medium Enterprises), and to make India the next investment and production hub for fulfilling the global need; Modi government moving ahead with Make in India campaign with paraphrasing slogans with the following ones.
“We will make the best products, improve our quality, and better our supply chain,” Modi said.
“Go vocal for local” is the cornerstone for building a 5 trillion dollar economy.
To understand these events, we need to understand the following things.
- What was the pre-COVID scenario of the Indian economy?
- How pandemic started and affected the Indian economy?
- How is India recovering from these unprecedented shocks?
- What will happen to the dreams of “Self-Reliant India” & “5 trillion-dollar economy” amid the corona wave?
- What was the pre-COVID scenario of the Indian economy?
India is the fastest-growing trillion-dollar economy in the world and fifth (ahead of UK and France) in the world with a nominal GDP of $2.94Trillion. (USA- $21.44 Trillion, China- $14.44 Trillion, Japan- $5.15 Trillion, Germany- $3.86 Trillion).
Between 2011-15, more than 90 million people escaped extreme poverty and improved their living standards, thanks to robust economic growth. As of October 2019, Growth was projected to be 6.0 percent in 2019-20 fiscal year and expected to rise to 6.9 percent in 2020/21 and to 7.2 percent in the following year. (Source- World Bank)
India, in the shadow of Make in India campaign for sure, could achieve its goal. Even if India would have been meeting a stagnant 8% GDP growth rate for the next four years it would have been a 4.3trillion by 2024. It was a very ambitious goal but wasn’t impossible. India eased out its stringent tax structure and investment for new business.
India had high growth in rural sectors, a small cottage industry, and India touched the export (% of the GDP) level of China and could have become an export-oriented country within one or two years.
India witnessed slowdown since the second quarter of 2018-19, auto market recession, High-level NPAs created trouble in non-financial sectors, and many more factors affected the Indian economy pre-COVID scenario. We were more pessimistic than optimistic. Growth started picking up from November 2019. Nevertheless, we faced Corona at the end of Jan 2020 and felt the downgrade in March.
How pandemic started and affected the Indian economy?
To understand pandemic and public outspread of any disease at the global level. First, we have to look into the genesis of the pandemic in history.
Chronologically Antonine Plague in 250 AD, Black death (bubonic Plague) during 1351, Influenza Pandemic in 1580, Cholera Pandemics in 1800, Spanish Flu in 1918, HIV-AIDS in 1970 to Covid-19 outbreaks in 2019, December; Humanity has witnessed numerous kind of pandemics in its history starting from the Peloponnesian war in 430 BC to 2020.
We have ignored the past lessons on how to form an effective public health policy and how to manage social inequality and disparities during such times.
India’s population contributes to 18% of the world population and has already crossed 12 Lakh reported COVID +ve cases so far. India being an Import oriented country, it depends a lot on China, The USA, and European countries for pharmaceuticals, textile, fertilizer, Automobile, Telecom, and Agri products, etc.
Supply chain disruption has created a gap between supply and demand at the macro level as there is already a lacuna between production and consumption. It has not only just affected metropolitan cities, but also has directly affected tier-2 & 3 cities and Rural India.
The IMF now says that Indian GDP in the ongoing financial year, which began in March 2020, will contract by 4.5%. Just a few weeks ago, it had been predicting a 2% growth for the year. It’s not surprising looking at other countries or the global economy.
Following the journey of India along with Corona so far will depict the seriousness of the situation.
- India witnessed its first corona case on 30th January in Kerala
- March 11- WHO declares Covid-19 a pandemic
- March 22- Nationwide Janata Curfew
- March 25 – Nationwide lockdown for 21 days then extended to till April 30
- May 1- Lockdown extension Zonal wise
- May 17- Largest lockdown extended till May 31
- June 1- Phase-1 reopening nationwide
- July 2- Phase-2 reopening Nationwide
- July 23- 12 Lakh Case Reported with over 62% recovery rate
Nearly one-third of the Indian workforce is migrant workforce (Source- United nations in India). These people were dependent on daily wages for their livelihood.
They used to send money to their families in villages for support at the end of each month, but due to the current pandemic, most of them have no jobs currently due to lockdown side effects and economic crises.
This impacts their as well as their families’ livelihood in the villages. Approximately, 84% of Indians are facing income decreases since the beginning of the lockdown. All across the country, more than 45% of the households have reported raw income drops in comparison to last year’s numbers.
Following are some anticipation from different sources-
- Goldman Sachs revised its growth forecast for India and said the economy is expected to contract by 5% for the fiscal year that began in April and ends in March 2021.
- India’s economy grew 3.1% in January-March, its slowest quarterly pace in at least eight years, and Moody’s expects a contraction of 4% in the current fiscal year, which runs until March 2021.
- India’s industrial production dropped sharply in April (by 55.5% compared with the same period a year earlier) due to nationwide lockdown.
- Rich as well as poor are losing out their wealth, Savings and unemployment skyrocketed. The proportion that said that their incomes were higher than a year ago was 9.6% in April. This fell to 6.1% in May and then to 4.4% in June.
- Consumption of non-essentials got hit, Labour participation plunged (fell by 37% by July 12). The pessimistic perception of Indian consumers is one of the many factors contributing to the dip of the economy.
- India’s economy will face inflationary pressure in the near term as supply chain disruption and lack of low-wage workers are expected to offset the deflationary pressures from subdued demand in the economy, as per Dun & Bradstreet’s latest Economy Forecast. Government data shows a 6.09% inflation in food items.
- As per Dun & Bradstreet’s business credit scores derived from the 2019 financial performance, 71% of Indian businesses fall under the “Slightly greater than average risk” category.
- During the lockdown, the country’s economy was expected to lose an estimated USD 4.5 billion every single day it remained shut. Out of the 2.8 trillion USD economies run in the nation, less than 25% of the entire system was barely functional and registering any sort of movement in the markets. (Source- Inventiva)
How is India recovering from these unprecedented shocks?
India Lost 122 million jobs in April 2020 and recovered 91 million jobs by June. (Centre for Monitoring Indian Economy Pvt. Ltd.). As shown in the graph, the employment rate jumped back to normal in June. One can be optimistic looking at the rejuvenation of the Indian economy.
How Countries recovered in the past from recessions?
The USA recession of 1953 was a V-shaped recovery (Quick to recover), and in the 1973-75 recession, it followed U-shaped recovery (Slow to recover). Most developing or developed nations follow U or V-shaped recovery and weaker countries follow W-shaped recoveries. China and the USA most probably will take V-shaped recoveries.
What will happen to the “Self-Reliant India” & “5 trillion-dollar economy” dream amid the corona wave?
Policymakers, the government, and all the business leaders need to be optimistic and for being a self-reliant country, we need to focus on the following points.
- Next Global level manufacturer
- Land and Labour market:- Technology and Supply chain smoothing
- Ease of doing business
- Trade deficit
Looking at the graph economies in Recession mentioned below. And one can understand the depth and severity of the situation.
(Source: Boltetal. (2018); Kose, Sugawara, and Terrones (2019, 2020); World Bank.)
The baseline forecast envisions a 5.2 percent contraction in global GDP in 2020. Advanced economies are projected to shrink 7 percent (World Bank). Covid-19 recession has witnessed the fastest and steepest downfall in growth projection among all global recessions since 1990.
The point is, we are not the only ones. If the effect is visible at a global level then we are no exception. We are one of the few countries (China-1.2%, Bangladesh-2%, Bhutan-2.7% are some of the positive Real GDP growth) who are having positive real GDP growth.
Next Global Level Manufacturer
The following point needs to be addressed if we want to be the next Investment hub and be in the 5 trillion dollar club. Don’t forget that India has a democratic economy and China has a social market.
The negative connotation that every country faced was depending upon China, extensively.
In 2010, China overtook the USA to become the largest manufacturer and in 2018, it accounted for 28% of the global output. But in the current scenario, India can capitalize on the opportunities available. Everyone is looking forward to investing in such a country which has minerals, manpower, and other entities of manufacturing industries. And India is the perfect choice for it as we have everything one needs to set up Industry.
India needs to smoothen out the process to create a world-class manufacturing ecosystem with a cluster of buyers, sellers, technology, and skilled labor. It can become the next global manufacturing if it will study what China did 30 years back. (Source-Financialexpress)
On 20th June 2020, PM Modi focused on economic growth in a 165-minute virtual interaction with other ministers.
After the China-US trade war, and the supply chain disruption from China’s side, most of the countries have started talks with India to establish industries here.
In September 2019, the Government of India had reduced the rate of corporate tax from 30% to 25%. On the other hand, it is 15% for the companies who are planning to set up new factories.
This will be helpful at the macro level. ‘Atma Nirbhar Bharat Abhiyan’ package will help India in reviving the economy, focus on land, labor, liquidity, and laws and will benefit farmers, workers, taxpayers, MSMEs, and cottage industry. (Source-JagranJosh) This will not drive the economy in full thrust but this will act as a catalyst for giving a push to it.
Ease of Doing Business-
Among the chosen 190 countries, India ranked 63rd in Doing Business 2020: World Bank Report. In 2014, after India launched the ‘Make In India’ program and reformed some regulatory norms. And, this resulted in India jumping 79 places in the Doing Business rankings since 2014. In construction permits, India’s ranking improved from 184 to 27 in 2019, India’s ranking on this parameter had improved from 137 in 2014 to 22 in 2019. India ranks 13th in Protecting Minority Investors and 25th in Getting Credit. India has improved a lot and taken really good and visible initiatives to reform the ease of doing business and continuously attracting new investors.
“Vocal for Local” is not necessarily free from global trade. India is an import-oriented country (USD 310 billion exports and USD 359.68 billion Imports, USD 49.45 billion deficit- April-October 2019-20 (Estimated) By Ministry of Commerce and Trade), so, we can’t be a trade free country overnight. It means to be more audacious and more local product oriented. We should push and uplift our local product rather than choosing an imported product.
“In the middle of difficulty lies opportunity” – Albert Einstein
PM Modi’s keynote address at India ideas summit 2020, contains the following two statements.
“For the first time, there are more rural internet users than even urban internet users. Imagine the scale! There are about half a billion active internet users in India now.”
“During the last six years, we have made many efforts to make our economy more open and reform-oriented. Reforms have ensured increased ‘Competitiveness’, enhanced
‘Transparency’, expanded ‘Digitization’, greater ‘Innovation’, and more ‘Policy stability’.”
India needs to learn what china did 30 years back, it needs to exploit the current situation, need to push small industries more, make credit easily available, keep inflation under control, make the economy more digitalize, make transparent fiscal policies, be more open as an economy and at the same time, need to close the trade deficit.
We need to focus more on Agriculture as well as the industry sector. We need all the factors in these sectors as PM Modi mentioned above.
Life is more important than the economy. So, this lockdown was essential but now it is more than essential that we should be percussive and as well as more welcoming for innovation, homegrown business, and foreign investment.
Need to take advantage of this unprecedented situation to be self-reliant and as well as a 5 Trillion-dollar economy.
Source Link: This article has been written by Pradipta Balliarsingh for Galactic Advisors