Wednesday, August 12, 2020

'India in race for worst performing economy in 2020'


'India is in a slowdown which most of us have not seen in our living memory.'

Illustration: Dominic Xavier

"Even if you are climbing out of the hole, you are not really climbing out fast enough," Priyanka Kishore, the economist behind the Oxford Economics report on the Indian economy -- A reopening gone wrong, which paints a grim picture of India's economic future post-Covid -- tells Shobha Warrier in the concluding segment of a two-part interview.

Will you say a stringent lockdown is inversely proportionate to faster economic recovery?

In some sense, yes. Especially if the government did not compensate by giving more cash transfers to vulnerable people, or give ample support to businesses so that they do not lay-off employees and are in a better position to benefit from reopening.

You are out of the lockdown, but layoffs are beginning to happen now in the organised sector.

That's because businesses are faced with lower demand, and the government did not have any employment protection plan in place.

The higher unemployment, in turn, would lead to reduced consumer spending and further weigh on demand, and so on and so forth.

So, I would say the stringency of lockdown is inversely proportionate to economic recovery in India's case.

Do you feel the stimulus package offered by the government did not excite the market mainly because the private sector did not have the confidence to invest?

The stimulus package was mainly offering cheap credit to businesses, whether they are large or small or medium. They did not provide any benefits or wage subsidies to retain employees to ensure continuity when the economy opened up.

So, when companies start laying off employees, people are losing income which will lower demand further.

In a way, you are automatically adjusting down your growth and demand expectations for your sector which, in turn, will affect output. This was what happened with the stimulus package.

Your study said India's GDP growth would lose momentum from late Q3 on. Do you feel the impact on the economy became more severe because the economy was slowing down even before the pandemic came?

Yes, that is very much the case. The country was dealing with balance sheet concerns both on the financial and the non-financial side.


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