by Iqra Yaseen
By the time, the British left India, its Gross Domestic Product (GDP) was growing at a sluggish rate of 2.5%. The population, at that point of time, was 36 crore and GDP in line with per capita income at Rs 30 (equivalent to Rs 280 now). This era was characterized by excessive poverty rate, around 50% of people dwelling beneath the poverty line; the excessive rate of illiteracy and unemployment, or we could say that British left India destitute of bucks. Dr Manmohan Singh, the former Prime Minister of India, had rightly said that “indeed at the beginning of the 20th century “the brightest jewel in the British crown” was the poorest country in the world in terms of per capita income.”
Since then variegated economic reforms and measures were taken through the financial bodies to rebuild the dilapidated economy. Initially, those measures failed miserably. India’s GDP growth dangled around a meagre1% to 2%, apart from 1975 where it altogether spurted to 9%. Amid some of these wretched situations, Dr Manmohan Singh, the Finance Minister in 1991, came up with an overall economic overhaul on July 24, 1991, popularly known by the name of LPG (Liberalisation, Privatization and Globalisation) structural reform. This reform proved to be a blessing in disguise.
Being a well-thought-out and properly planned reform, it altogether reshaped India’s economy. GDP began to push upwards, poverty began to decline, human beings started out getting education and employment possibilities commenced to appear. In 2010, alone, GDP turned into as high as 8.5%. The outcomes were so stupendous that India overcame its worst economic crisis inside the high-quality short length of two years. The roadmap seemed to be so clear and future of India’s financial system appeared to be so brilliant that India began to foresee US $5 trillion economy with an ample nominal GDP boom of 12.2% through 2024. On top of that, even, Deutsche Bank, one of the world’s leading financial service providers, had additionally begun to count on India’s economy to reach lofty US $7 trillion economic systems by 2030, or we could say that the Indian financial system appeared to be at top of the world leaving no stone unturned to achieve the milestone.
But this couldn’t last long. The Indian financial system’s argent outlook was soon matted by way of a few arguable measures and reforms, not to mention, that, I believe, had been formed on the drop of a hat. GDP declined from 8% to 5% and has been almost keeping status quo from that moment on. Further to this, fiscal deficit multiplied to around 3% to 4%, industrial production (IP) reduced to 3%, the unemployment rate reached an all-time high of 8.5% in October 2019. However, on the brighter facet, Foreign Investment Inflow (FII) and Foreign Exchange Reserves (forex exchange) showed an upward movement. “India is within the grip of an extended economic slowdown. Despite the Modi government taking measures, the economy is not rebounding as per expectations” writes Prabhash K Dutta, in his column in India Today, dated March 3, 2020.
Whilst Indian economy was already in shakes and not anything proved working, the undesired Corona Virus (Covid-19) simply added insult to the injury. The impact of this dreadful virus is expected to be so grave on the Indian financial system that the Moody’s, an American business and financial service company, slashed their envisioned India’s economic growth, initially, from 6.6% to 5.2% and later on to 2.5% for the year 2020, just after a month of their earlier estimate. “In India, credit flow to the economy already remains severely hampered because of severe liquidity constraints in the bank and non-bank financial sectors”, said Moody’s in its Global Macro Outlook 2020-2021.
If Moody’s estimates are to be believed, being a Consensus Economic Forecast Accuracy Award winner there may be a reason to trust so, then India is possibly regressing to the British era or can be even worse. Remember India was growing at 2.5% rate of growth when Britishers left. So there’s enough reason to justify that India’s current economic position parallels to the British era.
Umpteen macro level monetary and fiscal policies were announced thus far, by the Ministry of Finance and the Reserve Bank of India (RBI) respectively, to bring India’s financial system back in shape. But the financial specialists do not find them sufficient and adequate. An editorial in The Economic Times argued that “the RBI’s bold measures could be bolder.” This predicament calls for an “out of box” thinking approach by the Indian think tans. Cutting rates and allowing moratoriums along with the so called entertainment packages will no longer do wonders. Something substantial need to be done to keep the financial system floating.
“V-shape” shock geometry is, indeed, best of both worlds for any positive financial system, but India’s existent economic performance doesn’t warrant so. Right now, India, at the least, needs to crave for “U-shape” shock geometry. “L-shape” shock geometry will in reality aggravate the depressed economy. “A stitch in time saves nine” fits here. India’s economic system is sitting on a ticking bomb that could go off at any moment of time. India, inexorably, needs a 1991 withal modus operandi. A complete economic overhaul and, possibly, another structural reform is need of the hour.
“And I think we need to rebuild a new economy. This new economy is going to be a very different economy in the world. You can see that virtual economies are being tested today. They were overvalued and as a result, real businesses were undervalued. Now is the time to build that equilibrium and this is, I think, the time for building that equilibrium in our lives, in our business, in the economy”, says Biocon Chairperson and Managing Director, Kiran Mazumdar Shaw, in a video chat with Yourstory, on March 29, 2020. However, as it’s said, if wishes were horses, beggars would ride.
Note: The rates that appear in this article have been rounded off and may slightly differ from the exact rates.
(Author is a Junior Research Fellow at the University of Kashmir. Her research area is international business and trade. Ideas are personal.)