India's GDP contraction worse than any other G20 nations, says Gita Gopinath; Congress links slump to demonetisation

According to Gopinath, India's gross domestic product saw a contraction of 25.6 percent quarter-on quarter (QoQ) in the April-June period

FP Staff September 04, 2020 20:00:43 IST
India's GDP contraction worse than any other G20 nations, says Gita Gopinath; Congress links slump to demonetisation

India economy. Reuters

International Monetary Fund chief economist Gita Gopinath on Wednesday said that India's economy may have shrunk the most among G20 nations in the April-June quarter of 2020.

According to Gopinath, India's gross domestic product saw a contraction of 25.6 percent quarter-on quarter (QoQ) in the April-June period. The official numbers however, say that the GDP declined by 23.9 percent in the quarter 1 of FY21 as compared to 8.1 percent growth in Q1 2019-20. Notwithstanding the difference in numbers, this was the worst contraction recorded by the Indian economy in decades.

This decline is attributable to the global coronavirus pandemic and the ensuing lockdown that hit almost all sectors of the economy hard. The pandemic has had an impact on almost all countries that came under its spate; as per Gopinath's graph, almost all G20 nations' economy shrank except China which recorded a growth of 12.3 percent after contracting in the January to March quarter.

The Indian economy contracted the most in the given quarter followed by the UK ( 20.4 percent), Spain (18.5 percent), Mexico (17.1 percent), France (13.8 percent) and Italy (12.8 percent).

But India’s growth had slowed even before the pandemic struck. The contraction followed tepid 3.1 percent growth in the previous quarter, which was the worst performance in at least eight years, the National Statistical Office said.

Many economists believe Prime Minister Narendra Modi’s demonetisation of currency in 2016 and a "hasty" rollout of a goods and services tax (GST) inflicted blows to manufacturing. Hoping to avoid more serious economic damage, Modi government in May announced a $266 billion stimulus package, but consumer demand and manufacturing are yet to recover. It did not help when Finance Minister Nirmala Sitharaman submits to the crisis and washes her hands off by terming it an 'act of god'.

Indias GDP contraction worse than any other G20 nations says Gita Gopinath Congress links slump to demonetisation

Sitharaman's remarks drew flak as she invoked divine powers to justify Centre's inability to pay up the promised compenstaion to states in lieu of shifting over to the Goods and Services Tax Regime, at a time when state's too have been struggling under the burden of enforcing a lockdown while funding policies to curb a pandemic.

"This year we are facing an extraordinary situation…we are facing an act of God which might even result in the contraction of the economy," she had said.

Congress leader Rahul Gandhi launched a strong attack against the government over this, stating that the country was reeling under the impact of Modi-made disasters.

"India is reeling under Modi-made disasters: 1. Historic GDP reduction -23.9 percent 2) Highest Unemployment in 45 yrs 3) 12 Crs job loss 4) Centre not paying states their GST dues 5) Globally highest COVID-19 daily cases and deaths 6) External aggression at our borders (sic)," Rahul tweeted.

He also linked the crisis to the demonetisation exercise which kicked off in 2016 sucking out 80 percent of cashflow from Indian markets at a few hours' notice.

"PM Modi's cashless India is in reality a mazdoor-kisan-chhota vyapari mukt Bharat (India free of farmers, labourers, small traders)," the Congress leader said, adding that the frightening impact of the dice rolled on 8 November, 2016 was revealed on August 31 2020."

Many economists also say the distress caused by the contraction could be much worse within the informal sector, the backbone of India's economy, which was hit far harder than the organized sector during a nationwide coronavirus lockdown during much of the April-June quarter.

Rahul further latched on to this and claimed that demonetisation was in fact a plan to attack India's unorganised sector. "This was a way of taking out all the cash from the unorganized sector, which only works on cash. The PM said he wants cashless India. That means the unorganised sector is finished," he said.

There are hopes for a tentative recovery in the next quarter as tens of thousands of migrant workers who returned to their villages after losing jobs during the lockdown slowly return to cities as more workplaces open up. But the picture remains grim for many of the jobless.

About 19 million salaried people have lost their jobs since the 68-day lockdown began in late March, according to the Centre for Monitoring Indian Economy, an independent think tank.

Although many coronavirus restrictions have been gradually lifted, the strain on the economy is expected to continue. Areas most affected by the virus remain under lockdown.

With inputs from PTI

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