Indian Economy during the pandemic period: Disastrous policies wreck people’s lives

July 23, 2020
Venkatesh Athreya

[This is the second article in the series on the ongoing crisis in Indian economy]

The first recorded case of coronavirus was in Kerala on January 30 of this year. The Left and Democratic Front (LDF) government of Kerala led by Com Pinarayi Vijayan moved swiftly to face the challenge. It mobilised the entire people of Kerala in its efforts, the local bodies, the class and mass organisations of working people, various civil society organizations, the entire medical and para medical personnel and support staff. Till date, the Kerala government has been the best performer by far in India in meeting the Covid19 challenge, and has also won global acclaim.

The government of India, on the other hand, did not respond seriously for nearly two months, from January 30 till the last week of March, waiting for Trump’s visit and the BJP master-minded change of government in Madhya Pradesh to be successfully completed. It finally responded on March 24 in a most ham-handed manner by imposing a national lockdown, giving less than four hours’ notice. This had a devastating impact on millions of migrant workers, leaving them stranded in various cities, far from their families, with no place to stay and no income. It destroyed access to livelihoods and incomes for nearly 80% of our households, as business establishments closed down across the country. The government has continued to make a complete mess of handling the pandemic as well as its economic consequences. In this article, we shall provide an overview of the Modi government’s economic policies and their consequences during the period of the pandemic and lockdown.

Economic Crisis Before the Pandemic

The Indian economy was already experiencing declining growth when the pandemic arrived. Big business complained of the collapse in demand not only for automobiles but even fast-moving consumer goods like biscuits. The Modi government was in denial, but nevertheless announced several concessions for big business between August 2019 and January 2020, to boost the economy. These resulted in severe revenue losses for the government, totalling Rs 2.25 lakh crores even before the budget of 2020 February. Rs10,000 crores went to speculative foreign finance capital operating in stock markets; Rs 50,000 crores went to exporters; Rs 20,000 crores to housing and real estate players; and a whopping Rs 1,45,000 crores to the corporate sector through a drastic reduction of the corporate income tax rate to just 22%. The budget of February 2020 provided concessions to the extent of Rs 65,000 crores in direct taxes to the rich. Having thus given away nearly 3 lakh crores to big business, the Budget tried to manage the deficit through sale of Rs 2.10 lakh crore worth of government shares in public sector enterprises. But there was nothing for the working people -workers, peasants, small businesses and others.

Three key problems were the features of the Indian economy when Covid19 arrived. One was the continuing agrarian crisis, with no let-up in farmers’ suicides and negative returns from crop cultivation for a large proportion of small and marginal farmers. The second was the crisis of unemployment. The unemployment rate had risen sharply between 2011-12 and 2017-18, from 2% to 6%.  The rates were close to 17 - 18% among the youth and the educated. The third feature was the decline of household incomes­­. Between 2011-12 and 2017-18, when the GDP growth rate was claimed to be between 7 and 8% per year, average per capita monthly consumer expenditure of rural households fell by 8.8%, while the urban average rose marginally by 2.2%, signifying the collapse of rural demand. Both neoliberal policies pursued by successive governments at the Centre and the Modi disasters of demonetisation, GST, relentless increase in fuel prices and cutting down of welfare and investment expenditures lie behind these dismal outcomes. It is on this already weak economy that the shock of Covid19 landed.

Modi’s Mess

The lockdown imposed from March 24 was not a solution to the pandemic, but only a means of slowing its spread and buying time to equip our health infrastructure to manage the surge in the number of Covid patients when the pandemic spread. But the Modi government did precious little to improve or help the state governments to strengthen health infrastructure. The lockdown destroyed people’s livelihoods and incomes, but the Modi government offered paltry relief. The first ‘stimulus’ package, announced March 26th, claimed to be worth Rs 1.7 lakh crores, but this included existing budgetary allocations. The net new spending for relief amounted to Rs.93,000 crores, hardly 0.5% of India’s gross domestic product (GDP).  On May 12th, the prime minister announced a ‘stimulus’ of Rs 20 lakh crore. This too was a big fudge. It became clear from the finance minister’s announcements that the actual spending that the government would undertake as Covid relief would hardly amount to 1% of GDP. About Rs 18 lakh crore out of the announced Rs.20 lakh crore are in the nature of increasing liquidity and credit availability in the economy through banks and other financial institutions. This is of little help to workers, petty producers, small and medium industries and entrepreneurs (MSME), peasants and other working people. Not only did government offer little relief to people, it announced economic ‘reforms’ pushing the agenda of liberalization, privatisation and globalization. It raised the FDI limit in defence manufacturing via the automatic route from 49% to 74% and opened up the coal industry to private capital. It declared that it would limit the role of public sector to a few specified ‘strategic’ activities while all activities will be open to the private sector.  Several new concessions and policies favouring private big business, both Indian and foreign, have been announced. Through three ordinances, the government has opened up the agricultural sector to foreign and Indian big business, begun the process of abandoning procurement and price support for farmers, removed stock limits on essential commodities enabling big traders to hoard  and sell them at artificially high prices, and liberalised rules for land acquisition by corporate entities even in tribal areas. It is pursuing anti-labour measures both directly and via BJP led state governments. The draconian lockdown regime, under which protests and mobilization are difficult to carry out, is being used to push through anti-people reforms. The farce of selling the country’s mineral wealth and industrial assets to foreign capital while talking of self-reliance is being enacted.

Meanwhile, the Indian economy is sinking deeper into severe recession. GDP in 2020-2021 is expected to be 6 % less than in 2019-20. In April 2020 alone, 14 crore persons lost employment. Even with the resumption of economic activities across the country, the unemployment rate which touched 25% in April-May, remains high even in mid-July. Though agricultural activities picked up with the arrival of the monsoon, the peasants facing a mountain of debt have been hit hard by sharp rise in input prices, with the Modi government increasing petrol and diesel prices through huge additional taxes. Retail inflation has risen sharply. The limited increase in employment has been accompanied by poor wages and low incomes from self-employment. As the world economy also tanks, worse is ahead for the Indian economy, notwithstanding the dreams of our rulers of riding on the presumed ‘exodus’ of capital from China in the post Covid phase.

Perverse Centralization

A particularly obnoxious feature of the Modi government’s handling of the pandemic challenge has been the manner in which it has put numerous obstacles in the path of state governments which are dealing with the pandemic on the ground. It has centralised decision making on lockdown strategies, on ensuring supplies of masks and other personal protective equipment (PPEs), on testing kits, indeed on practically all matters. In addition, it has given little financial assistance to states, and in fact owes the states large sums of money by way of GST compensation and tax devolution. State governments lost enormous chunks of their revenues during the lockdown and with no help coming from the Central Government, they are struggling to continue the battle against the pandemic.

Towards an alternative approach

The pandemic has exposed the grave weakness of a profit driven health sector across the capitalist world, and created strong pressures for public investment in health and serious regulation of the private sector but the Modi government is moving in the opposite direction of ultra-neoliberal policies. In sharp contrast, the Left Parties have put forward a pro-people alternative calling for (a) immediate relief measures for another six months in both cash and grains and other provisions to all households which fall outside the income tax net and a massive increase in MNREGS spending to provide 200 days of employment for all those seeking work in rural areas, (b) medium and long term measures to strengthen the rural economy and infrastructure, including strengthening agricultural research and extension systems, one time loan waiver for peasants, and promotion of agro-processing and value addition in rural areas through cooperatives and other means, with the involvement of elected local bodies, and (c) massive increase in public investment in health, education and infrastructure including transport, communications and storage to be financed by a wealth tax on the wealthiest households

A strong and sustained campaign is needed to expose the regime’s disastrous policies and popularise the alternative put forward by the Left Parties.