Lockdown contraction

The world’s severest lockdown has taken its toll. The Indian economy has shrunk by a fourth of its size in the April-June quarter, with no sign of revival in sight. This is the first contraction after quarterly data started getting compiled in 1996 and a much bigger one than the previous instance in 1979-80. In fact, on the basis of the 23.9 per cent reduction in GDP in the first quarter, some experts are predicting a terrible contraction of 9.5 per cent for the financial year. Had it not been for growth in agriculture of 3.4 per cent, the situation would have been much worse. Agriculture is the only sector which has registered growth and that too because of the farmers braving the pandemic to ensure the harvest in time.

It offers no solace to note that the US and the UK economies have shrunk by 31.7 per cent and 20.4 per cent, respectively, for, their recoveries would be quicker and their impact in terms of pushing people into abject poverty would be much lesser. Surprisingly, China, the source of novel coronavirus, has grown by 3.2 per cent during this quarter. Economists predict the contraction to continue for about six more quarters before the economy returning to the positive field. By enforcing strict lockdowns, the governments have forced people to consume less, thereby reducing the demand at an unprecedented scale, resulting in a dramatic reduction in tax revenue.

Despite struggling to find money for salaries, governments like that of Punjab are still enforcing weekend curfews and night curfews. All the curfews have not stopped India from posting the third highest number of cases and deaths in the world. After failing to contain the disease, the governments now need to realise their folly in squeezing the demand and should ensure the economy recovers at the earliest. The Centre has failed to compensate the states for their GST shortfall and is pushing them into a debt-trap by forcing them to borrow instead of the former honouring its commitment. The Prime Minister and the Chief Ministers should immediately sit together to devise strategies for revival.

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