Most often, when I get a fever, I function pretty well till I measure it with a thermometer. As soon as I see my temperature, I feel the need to lie down, or be propped up with half a dozen pillows and be fed hot chicken soup.
This is exactly what has happened with the industrial output numbers for April. We all knew that India’s factories produced hardly anything throughout the month.
Despite that, the sheer magnitude of the decline is deeply depressing.
The True Math Behind India’s Industry Collapse
Numbers make things appear concrete. When they are encouraging, they create a feel-good effect. And, the reverse happens when they are bad.
That is the reason why the Modi government’s data department has only put out the index numbers for factory output – the Index of Industrial Production, but hasn’t published the percentage change.
Of course, it takes middle-school mathematics to calculate it, but Modi Sarkar wants you to do the work yourself. In fact, the press release categorically says that “it is not appropriate” to compare these numbers with previous months.
Obviously, no one is going to listen to that advice.
So, here are is the math: Industrial production in April this year, dropped to less than half of what it was in April 2019. The collapse was led by manufacturing, which declined by a whopping 64 percent.
Mining dropped by 27 percent. And, since factories and offices were shut, electricity generation reduced by 22 percent.
If you take a 12-month period from May to April, then industrial production is down 5.6 percent compared to the previous year. Manufacturing is down 6.8 percent, mining 1.1 percent and electricity is down 1.5 percent.
As I have said earlier, this was bound to happen. As the index numbers show, some industries shut down completely, and that dragged down the overall level of output. The worrying part is the data for last fiscal – April 2019 to March 2020.
An Opportunity Missed
Just one week of lockdown caused industrial production to contract by 0.8 percent and manufacturing by 1.4 percent. The numbers aren’t much better if you remove data from March. Industrial production in the 11-month period between April 2019 and February 2020, grew by just 0.9 percent compared to the same period in the previous year, and manufacturing grew by just 0.7 percent.
These are abysmal numbers that have nothing to do with the COVID-19-induced lockdown. In fact, things look even worse if you take the period between April and January in 2019-20.
The industrial slowdown is a legacy of the Modi government’s inability to fix India’s demand problem. It had an opportunity to do it in this year’s Budget, but it was missed. The coronavirus-induced economic crisis was a godsend to spend more and stimulate the economy, without facing the opprobrium of the rating agencies. It was yet another opportunity missed.
Finding a Fix for the Supply Problem
One reason why Mr Modi has been so wary of expanding his fiscal deficit is because he fears it could trigger runaway inflation. If there’s one thing that he has focused on, since he first became the Prime Minister in 2014, it is prices – especially food-inflation.
Of all the everyday economic processes that rule our lives, price-rise affects the largest number of people in a visceral immediate manner. Even those who do not get work every day feel less insecure if prices are stable. Similarly, the price of onions is known to have voted even popular governments out of power.
To its great credit, the Modi regime managed to keep food-prices in check. In fact, in the winter ahead of the 2019 Lok Sabha elections, food-inflation had turned negative. Suddenly, the lockdown has changed this equation.
Food prices rose by 9.28 percent in May, and it was just a shade below double-digits in India’s villages. This is at a time when evidence from farms suggests that vegetables aren’t fetching their fair price. So, farmers aren’t getting enough to cover their costs, while consumers are paying more for what they are buying. This is a classic supply problem, which is unlikely to get fully resolved in the coming weeks.
The Road to Recovery
Mr Modi probably had no option but to impose the sudden lockdown. However, after that, it was needed to get into a war-economy mode to deal with the production, supply and demand disruptions.
What we have seen till now is a series of ill-conceived band-aid solutions. What was needed was targeted government spending to help businesses pay their employees in the face of zero revenues along with putting more money in the hands of the middle-class so that they don’t stop consuming.
That is exactly what Donald Trump has done in the US, which has helped him add jobs in May, when every economist thought unemployment will increase. But, Team Modi has decided to tighten the government’s belt even further, instead of giving a meaningful economic stimulus.
One can only hope that we will see a quick recovery, now that the lockdown is slowly opening. To ensure that the economy can get back on track on a sustained basis, we need a proactive health and finance plan. If the Modi government has any, it is keeping it a secret.
(The author was Senior Managing Editor, NDTV India & NDTV Profit. He now runs the independent YouTube channel ‘Desi Democracy’. He tweets @AunindyoC. This is an opinion piece. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)
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