The Indian economy was in one of its worst-ever deceleration phases even before the Covid-19 pandemic. GDP growth fell continuously for eight quarters (except for a .08 percentage point blip between December 2018 and March 2019. It was 8.2% in March 2018 and had fallen to just 3.1% in March 2020. March saw just a week of the lockdown (which would eventually last 68 days, albeit with some relaxations).

Even before the full force of the pandemic hit India (which was really in April-June quarter in terms of livelihoods; and July onwards in terms of lives with both cases and deaths rising), the slowdown was already worse than the one the Indian economy went through in 2011-12.

Back then, quarterly GDP growth fell from 10.3% in March 2011 to 4.9% in June 2012. However, the economy started recovering after 2011-12. Annual GDP growth fell from 8.5% in 2010-11 to 5.2% in 2011-12. This contraction was followed by a sharp recovery until 2016-17. This has not been the case this time and GDP growth has been falling continuously since 2017-18.

Nominal GDP growth in 2019-20 fell to just 7.2%, the lowest since 1975-76. The 2019-20 Union Budget assumed a 12% nominal growth. Nominal GDP is crucial for revenue collections, as taxes are a fraction of nominal incomes. The sharp fall in nominal growth was a big reason for a huge shortfall in tax collections in 2019-20. According to data from the Controller General of Accounts, which works under the ministry of finance, gross tax revenue collections were just 81.6% of the budget estimates in 2019-20, the lowest since 2000-01. To be sure, the Corporate tax cut announced in September 2019 and the overall slowdown in the economy exacerbated matters on the revenue collection front.

Fiscal deficit woes

There was more bad news for the Modi government with the controller general of accounts revealing that the fiscal deficit had jumped to 4.6 per cent in 2019-20, far higher than the 3.8 per cent that Sitharaman had projected in her revised estimates while presenting the budget on February 1 this year. This might explain why the Centre has been so tight-fisted in its fiscal spending to fund the Rs 20.97-lakh-crore stimulus programme.

Farm to the rescue

The agriculture sector saw a growth of 4 per cent during the year — a sharp surge over the 2.4 per cent growth in 2018-19. Manufacturing and construction showed poor growth numbers at 0.03 per cent and 1.3 per cent, respectively, down from the lofty growth rates of 5.7 per cent and 6.1 per cent, respectively, in the year-ago period. Growth in the financial and real estate sectors slowed to 4.6 per cent while hotels and transport saw growth dip to 3.6 per cent from 6.8 per cent and 7.7 per cent, respectively, a year ago.

Before the virus hit, India was already in the middle of a protracted economic slowdown because of a festering crisis among shadow lenders and a sharp decline in consumer demand and private investment. The Central Statistics Office has revised downwards the growth in the October-December quarter of 2019-20 to 4.1 per cent from 4.7 per cent. Similarly, the first and second quarter growth figures have been revised downwards to 5.2 per cent and 4.4 percent from 5.6 per cent and 5.1 per cent, respectively.

The Digpu News Bottomline

While it won’t be wrong to say that the COVID-19 pandemic has sent the world economy into a tizzy, the Indian economy was pretty much there even before the pandemic hit with only the Farm sector being a ray of hope. With the 5 Trillion Dollar Economy dream in mind, India had to support its farmers now more than ever and hope that they pull the economy’s plough out of this downfall.

However, Modi governments recent policies have ensured that the Farm sector hits a blockade too. With farmers on the road against the controversial Farm Laws, it remains to be seen whether Finance Minister’s bet horse, the Infrastructure Sector, is able to do what the Farm Sector could have easily done with a bit of support.