The economy is in a recession only on technical terms, but that’s no reason to rejoice. Impacts of the Covid-19 pandemic and the alleged policy mishaps of the Centre seem to have taken India on a precarious trajectory economically.
It’s official. India is in a recession. As the joke goes, this time it is real. Most of us know what an economic slowdown is but few of us would know the real difference between a recession and a slowdown. India’s economy has been through many slowdowns in its recent history. But recessions have been rare — four since the Republic was formed.
Technically speaking, an economy slips into recession when it faces two consecutive quarters of negative growth in GDP. We assume you know what the GDP, or gross domestic product, is and why its growth matters to economies. GDP growth influences so many things, including how investments come into a country and hence two three-month periods of minus growth means a big deal for those who go by the GDP indicators before analysing a country’s economic performance.
Recession happens in the global economy as well. The world has seen four recessions in the last seven decades, starting in 1975, 1982, 1991 and 2009, impacts of which many economists say still continues. What generally happens during such economic crises is annual real per capita global GDP shrinks. This contraction spreads to other key indicators of economic activity. For instance, during the 2009 global recession, powered by the financial meltdown, most advanced economies, such the US, which was the epicentre of the crisis and Europe, which fell prey to the Butterfly Effect of the US fall, felt the brunt.
India and recession
So, for India, the GDP growth numbers for the July to September quarter (Q2) suggest India has entered a recession, considering the growth numbers hover around a negative 8-10 per cent. That said, experts say that the real test for the economy is not whether or not it has slipped into a technical recession, but how other economic indicators, such as savings growth, money supply, consumer price index, producer price index, food sales, etc. are performing.
On that cue, India has a lot to worry now. Even though policymakers and a section of the media have been highlighting rosy numbers for sometime now, suggesting an uptick in the economic performance, a hard look at crucial data suggests economic recovery is an unfinished business. The impacts of the Covid-19 pandemic have been hard on the country and its working population, so much so that there has been a general fall in wages, calorie intake of the poor, purchase activity at the bottom of the pyramid, rural employment and similar indicators.
Commenting on the ‘Immiserisation Behind the Recovery’, economist Prabhat Patnaik says the economy’s climb back from the Covid wreckage, however weak that appears now, will get aborted soon considering that it is accompanied by such factors as changes in the job market and fall in worker incomes which will lead to “rise in the rate of surplus-value”. Patnaik points to an interesting and extremely important trend. He notes that the International Labour Organisation’s estimates for the same quarter July-September 2020 show that for South Asia there has been an 18.2 per cent drop in labour-hours worked compared to the October-December quarter of 2019.
Poor and working people
What does that mean? We know India plays a major role in the South Asian labour market. Patnaik explains that we can expect a similar drop to have occurred in India as well, “compared to the July-September quarter of 2019”. This means, there isn’t pretty much anything we can take solace from when it comes to the economic recovery. Workers are not getting their jobs and salaries back. And most of them don’t stand a chance doing so in the near term future. Their incomes have been hit hard. Most of these working poor families have cut spending.
A self-imposed austerity has become the hallmark of Indian families, especially the lower-income households, during the pandemic, point out experts. In states where welfare measures have been palpable, poor households are seen relying on doles to survive. But those who stay in states which have a traditional apathy towards social spending, the crisis has been quite dramatic and devastating. Economists such as Patnaik have been arguing that the best bet against the pandemic-induced economic crisis is to enhance the purchasing power in the hands of the people.
This calls for what economists term a Keynesian approach. As British economist John Maynard Keynes suggested, the best way to get out of a recession or an economic depression (which roughly means prolonged recessions like in the case of the infamous Great Depression) is to get the governments to spend. This creates jobs and encourages people to work and earn. Eventually, money reaches the needy and they start spending, which in turn rejuvenates the economy.
The Keynesian approach helped several counties get out of economic slowdowns. A giant proof of its success is America during the post-Depression period. The now-famous New Deal of socioeconomic measures initiated by US President Franklin D. Roosevelt during the 1930s were anchored in the Keynesian economic approach. The New Deal helped America get out of the Great Depression.
In his article, Patnaik notes that the only possibility of reviving the Indian economy is through increasing demand, especially consumer demand. “But the government has done virtually nothing to revive such demand,” he observes. One of the major socio-economic reforms that the US New Deal put forth had lasting imprints on the US economy, inspiring countries across the globe. The Social Security Act, which offered income for the elderly, disabled and children of poor families, was the most important of them all. Another one was the Glass-Steagall Act of 1933. This Act set up the Federal Deposit Insurance Corporation, which insured the savings of Americans in the event of bank failures (sounds eerily similar to India today).
Economists say India must act now along similar lines to ensure the economy recovers for the benefit of the poor and vulnerable in the country. A consolidated contingency fund for social security, more loan waivers and more allocations for rural job guaranteed schemes, more money for rural entrepreneurs and self-help groups and cooperatives, succour for the jobless and creating more employment in both the rural and urban centres, raising the minimum wages and implementing a strong minimum pay rule are some of the measures economists have been suggesting for a while now.
Is the government listening?