Indian economy has seen a major dump off late in 2020. From CAA protests to Coronavirus pandemic and from Chinese incursions to failing financial policies have affected the economy big time. Having said this, a glass of water could be taken as half-empty or half-full, depending on how you look at it. The Reserve Bank of India has constructed a model for estimating the GDP trends every month based on tracking high frequency data of twenty-eight sectors. The model shows that the economy has shrank by 8.6 per cent in the second quarter of the year (July, August, and September 2020). Earlier, in the first quarter (April-June), the Indian economy had contrasted by almost a quarter, to be specific 23.8%, as revealed by data released by the national accounting office. Technically, if an economy shrinks for two quarters consecutively, then it is said to have entered into a recession. However, if we care to remember, the Indian economy had a similar experience towards the end of 1960s when the entire engineering industry was hit by a severe shrinkage.
The new data can be seen pessimistically — that the economy was still shrinking at a hefty pace. It can also be interpreted enthusiastically —that we are shrinking much less than in the previous quarter. In the midst of all this ‘nowcasting’ of GDP trends, the finance minister, Nirmala Sitharaman, has waded in with her latest package of stimulus measures. She of course echoed what RBI had shown in their data models. She referred to published figures showing recovery in economic activity, possibly obliquely hinting at the good effects from her previous rounds of stimulus packages. Once again, somewhat charitably one can factor in these government sops to have moderated the rate of shrinkage and introduced a measure of growth impulse. They surely have had some ameliorating impact. However, for the present, the new announcements appear to have been crafted with the principal objective of encouraging those segments which have the largest multiplier effect for every measure of stimulus. How far should these really help? The latest package has laid stress on construction, infrastructure building and completion of stalled housing projects. She also continued on her incentives for companies to rehire workers who had lost jobs in the pandemic period with further sops. Resumption of construction and housing completion should trigger demands for a variety of items from iron and steel to cement and consumer durables.
The other scheme she announced was the PM Awas Yojana for the urban areas which also should address employment creation in a segment where there is real need. Urban poor had faced the worst hardship in the wake of the pandemic. In rural areas, farming has resumed and jobs are being generated otherwise under the MGNREGA schemes. Nothing of the kind has happened for those in urban areas and the renewed bid for urban housing for the poorer sections should address the social distress among these sections of the poor. In the context of the pandemic, it is not only the numbers but the qualitative impact of measures in taking care of the huge suffering of the weakest sections of society that assumes greatest priority.