The promise of a Rs 20 lakh crore stimulus package was almost like a dream no one expected. That too was delivered at 8 PM, a time which has become notoriously synonymous with the demonetisation announcement. And that too, it was made at a time when the country is in the midst of a pandemic – of both fear and disease.
This was the crux of the prime minister’s address to the nation on Tuesday, 12 May.
Despite some omissions – the most glaring being lack of acknowledgement of the raging humanitarian crisis involving migrant workers across the country – the prime minister surprised most of us on the upside.
Is it possible to raise resources worth Rs 20 lakh crores given the current state of the country’s finances? Finance Minister Nirmala Sitharaman’s 4 PM address on 13 May, offers some clues.
Words Carefully Chosen to Fire Imaginations
The PM, however, sold a dream, and that was very much required at this hour to lift the sagging morale of the nation. Self-reliance, local-vocal, vibrant demography, making the 21st century ‘India’s Century’, ramping up the supply chain to compete with the best in the world, an efficient system based on technology and world class infrastructure – they are vague, yet powerful words to fire imaginations. More so in turbulent times like these.
The speech was less about corona and the accompanying lockdown (and rightly so, I think) – and more about a promised better life beyond that. After seeing the damage an extended and pan-India lockdown has done to the country’s economy, a well packaged dream was very much needed from the PM.
For the country that took coronavirus seriously only after the prime minister said so, it was only logical to have an exit plan spelt out and explained to the nation by him.
That too with a view to give the people a sense of purpose.
Massive Job Losses Have Created Wounds That Will Take Ages to Heal
A kind of reassurance was needed as the recent numbers have been nothing less than catastrophic. According to the Centre for Monitoring Indian Economy (CMIE), we lost nearly 80 lakh jobs in March. And April has seen an absolute bloodbath with an additional loss of 11.4 crore jobs and unemployment rate galloping to 27.1 percent. There has been marginal improvement in the first week of May with unemployment rate falling to 24 percent but it still is at very elevated level. .
The hardest hit have been small traders and daily wage workers. CMIE’s Mahesh Vyas writes that “employment among these (small traders and daily wage workers) dropped from an average of 128 million in 2019-20 to 116 in March and then, just 37 million in April. A massive 91 million lost their livelihoods in just about a month. This is not just a mind-boggling number. It is a human tragedy because these are perhaps, the most vulnerable parts of society.”
What is more, a quarter of all businesses have closed down and 21 percent of all salaried employees too have lost their jobs in just one month. If this is not a catastrophe, what is?
Another shocker came from the rating agency ICRA’s estimate of GDP growth in the current quarter and for the financial year as a whole. The rating agency expects a whopping 20 percent contraction in the quarter ending June, and a 2 percent contraction for the entire financial year.
Contraction Means the Ranks of the Poor Are Rising Rapidly
We know the debilitating impact of job losses and economic slumps. In the case of India, however, there are secondary effects too.
According to an Institute of Economic Growth research paper, an additional growth of 1 percent per capita GDP means 0.78 percent reduction in number of people below the poverty line. Conversely, a slump means more people joining the ranks of the poor. No wonder the impoverished migrant workers are in such despair as they have already sensed what is coming.
The paper also estimates that a percent increase in GDP means 0.85 percent more openings in the formal sector.
And a percent increase in per capita GDP also translates into, on an average, 0.41 percent rise in real wages of unskilled workers.
A contraction now, and likely stunted recovery later, in the absence of a massive relief package would have resulted in a drop in wages across all the sectors – organised and unorganised.
Falling Income Limits Our Chance to Fight Disease
Loss of jobs also raises our vulnerability to other diseases. The share of out of pocket expenditure on health, on an average, constitutes as much as 7 percent of our average monthly expenditure, up from less than 5 percent in the 1990s.
The average expenditure on medicine alone is close to 4.5 percent. Rapidly falling income limits our ability to pay for healthcare.
As it is, the expenditure on health (since access to public healthcare has shrunk considerably in the last few decades) has been one of the biggest contributors to the process of pauperisation. This is yet another ugly reality we cannot lose sight of.
High Growth Pulled Nearly 18 Crore People Out of Deprivation Between 2005-2012
It has been established beyond doubt that sustained high growth is the only option for us to reduce the level of absolute deprivation in the country. A 2014 McKinsey report estimates that “56 percent of India’s population lacks the means to meet their essential needs. By this measure, some 680 million Indians are deprived — more than 2.5 times the population of 270 million below the official poverty line.” That estimate was for the year 2011-12.
The report observes that because of very high growth registered from 2005 to 2012, the country could manage to pull nearly 18.3 crore people out of deprivation.
It also says that the most effective way to reduce deprivation is by creating formal sector jobs. A sustained attack on deprivation would have entailed creating additional 12 crore non-farm jobs by 2022
What we have instead is loss of jobs to the tune of 12 crore in less than two months alone.
In the midst of such gloom and doom, the PM had to lift our spirits. It looks like the promise of a Rs 20 lakh crore package has raised hopes that the entire damage can be undone quickly, and there is going to be, as the PM said, a ‘quantum jump’ over and above that.
A change in sentiment, as they say, is a precursor to real change.
(Mayank Mishra is a senior journalist who writes on Indian economy and politics, and their intersection. He tweets at @Mayankprem. This is an opinion piece and the views expressed in this article are that of the writer’s own. The Quint neither endorses nor is responsible for the same.)