Howdy Economy: ‘GDP has contracted by at least 1%’

As India’s economic woes seemingly go from bad to worse, NH reached out to eminent economist Arun Kumar for his opinion and possible solutions

Arun Kumar, Professor (retired), Centre for Economic Studies and Planning, JNU
Arun Kumar, Professor (retired), Centre for Economic Studies and Planning, JNU

Tathagata Bhattacharya

How do you see the status of the economy now?

The Indian economy is in recession though CSO data does not show that. My calculation is that the economy has contracted by at least one per cent in the last one year.

How did we come to this situation?

It started with Demonetisation. You see, the unorganised sector which employs 94 per cent of the country’s workforce and produces 47 per cent of the output was massively hit. This sector runs on cash. And before they could recover, they were again slammed by imposition of the GST regime. Though they could not benefit from input tax credit, they nonetheless ended up spending more after raw materials, etc. The NBFC crisis also hit this sector most. The problem has now spread from the unorganised sector to the organised sector.

Is the government alive to the situation?

I think they are aware of the problem but their solutions are wrong. When more money needs to be pumped into rural India in terms of heightened public investment in infrastructure, education, healthcare, telecom, etc, all interventions till now are on the supply side while the malaise lies with the demand side. Of what use will be a Rs 1.45 lakh crore tax break to the corporate sector, Rs 75,000 crore for bank recapitalisation or Rs 25,000 crore to the real estate sector to boost demand growth amongst the poorer sections linked with the unorganised sector?

So, you think the government’s dreams of a $5 trillion economy is unlikely to be realised?

They are not dreams, just words, just like those announcements of doubling farmer’s incomes by 2022 and pumping in Rs 100 lakh crore in infrastructure over the next five years were. Do you see any of that happening? These are just hollow words.

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