Covid-19 Pandemic: The Mirage Of $5 Trillion Economy, Will India be Able To Achieve?

The economic outlook of 2019-20 which was presented by our finance minister, Nirmala Sitharaman, was majorly focusing on wealth creation. The government wanted people to make a large amount of investments and try to achieve the $5trillion economy through exports, liberal policies, and the opening of the economy.

An economic survey pointed out that there might be a growth of 6-6.5% in this fiscal year but it also suggested the government to relax the deficit in order to create balanced economic conditions. The 2018-19 GDP was the lowest in decades.

Economic growth, which primarily is driven by consumer spending, has to now come from greater investments. The Survey emphasized on investment-led growth by focusing on reviving the MSME sector. The Indian economy was already in a disdain during October and November of last year, the COVID-19 crisis has led to even more depletion of the same.

Less than half – 42 percent – of respondents in the Mood of the Nation survey believe that India can become a $5 trillion economy by 2025. The survey conducted by India Today and Karvy Insights surveyed 12,141 people from across the country. When the people of the country are doubtful about its unrealistic growth, how can the country actually achieve it?

During that phase when the whole concept of our country’s economy was coming out in a very wrong way, the monetary body, the IMF, slashed India’s growth to 4.8 percent from its earlier projection of 6.1 percent. IMF Chief Economist Gita Gopinath said that India is primarily responsible for the downgrade revision in growth projections for emerging markets and developing economies.

Projecting a false image of the economy for creating a better name is definitely not the way to move forward. The REAL GDP has to increase to reach a higher level.

Facts about the Indian economy:

1. India is the sixth-largest economy. But this does not necessarily mean that the people of India are the sixth-richest people in the world! The per capita income is quite less for everyone as the wealth is accumulated in the hands of few.
2. In 2018-19, India’s GDP was $2.75 trillion. The latest growth rate happens to be 4.5%. How long it will take to get to the $5-trillion mark if India continues to grow at this rate. Clearly, in 2019-20, the GDP will rise to $2.87 trillion, which is $2.75 trillion-plus 4.5% of 2.75. If we continue in the same fashion to compute the size of the GDP and it becomes clear that the target of $5 trillion will be reached not in 2024-25, but in 2032-33.
3. Also, Rs 1.7 lakh crore relief package has been announced by Finance Minister Nirmala Sitharaman which will increase the spending of the government. Take it to a higher deficit level and increase the deficits by 1%. This will in turn put more pressure on the Indian government and the whole idea about the $5trillion economy seems like an illusion.

What has happened to the economy because of the pandemic?

• The Indian economy is doing to shambles because of the pandemic. People are not able to work. Offices aren’t operating, the supply chain has been affected and the labor has migrated back. How will the company’s work? The revised Gross Domestic Product (GDP) estimates for India downwards by 0.2% for the fiscal year 2020 to 4.8% and by 0.5% for the fiscal year 2021 to 6%.
• One of the major barriers arises from the imports. Indians are highly dependent on the Chinese for the imports. Out of the top 20 imported products, China accounts for the major share. India’s electronic imports account for 45% from china. The automotive parts and fertilizers China’s share in India’s imports is more than 25%. Around 65 to 70% of active pharmaceutical ingredients and around 90% of certain mobile phones come from China to India. Since all these will be stopped, there will be major issues in the Indian market and the price of goods will definitely increase.
• 72% of the Indian companies are located in China (Shanghai, Beijing, provinces of Guangdong, Jiangsu, and Shandong). These provinces were the first to get the hit by coronavirus. The operations have laid down.
• The pandemic has impacted most business sectors from aviation to hospitality, from real estate to apparel, from agriculture to poultry, from petroleum to shipping. The list has almost all the sectors and a huge downfall is predicted for these sectors. This will obviously lead to a fall in the GDP of 2021 and then we can say goodbye to the image of the $5 trillion economy.
• The MSME sector accounts for 30% of our country’s GDP. At the moment, this sector is just disappearing because they are unable to manage the fixed expenses with zero or a very less income. If these sectors do not work, the mirage won’t be achieved

The outbreak is declared as a national emergency by the World Health Organisation. In India the three major contributors to GDP namely private consumption, investment, and external trade will all get affected very badly and will cause a lot of damage to the economy.

“My own estimate is that the 21-day countrywide lockdown which has been enforced, itself will result in shaving off at least 1 percentage point of GDP. And if you take earlier problems created by the coronavirus pandemic before the lockdown and the uncertainties of the future, then a 2 percentage points decline in growth rate (for 2020-21) is not unlikely at all,” said the former finance minister, Sinha.

Top-notch companies weren’t doing well in 2019, how will they even tackle the lockdown and expect to grow?

• There was a sharp fall in the automobile sector with no sense of recovery back in 2019. Huge companies like Toyota, laid of employees in large numbers. With this move the Indian subsidiary of Toyota Motor Corporation of Japan becomes the fourth auto company after General Motors, Hero MotoCorp and Ashok Leyland to launch VRS for employees in 2019.
• Acko, an online insurance firm has laid off about 50 employees to cut down the costs. They have fired these employees from the customer service segment, the marketing segment, and the operations sector.
• A very famous cloud communication firm, Exotel, resorted to capping the salaries of the employees for the next two months because this is a highly uncertain situation.
• MakeMyTrip, Cleartrip, ixigo, and hospitality chain Fab Hotels are among the companies looking at salary cuts while a few others have started sacking staff.

The Indian economies old state is dragging down the already existing effect of the pandemic.

With the unemployment rate skyrocketing, how can we even imagine a $5 trillion economy when people don’t have jobs and a house to live in?