Credit rating agency Moody’s has revised its outlook on India’s growth next year. It now says India is likely to do better than it earlier anticipated. Financial institution Morgan Stanley expects a firm recovery in 2021.
Reports are coming in from many quarters that India is swiftly recovering from the economic crippling caused by Covid-19-related lockdowns. Factory output in the country has risen steeply and at levels not seen in nearly a decade. While the exact shape of the ‘curve’ of India’s economic recovery is still being analysed, there is a palpable sense that things could have been much worse; indeed, by some estimates, they had been forecast to be much worse.
If a political economy event could be considered the measure of the emotion on real street, then it would be the recent elections in Bihar, one of the country’s poorest major states, where the ruling BJP-JD(U) combine won the elections, mostly on the personal appeal of Prime Minister Narendra Modi. What is going on? First, the stimulus rolled out by the Indian government has come in phases, with a constant feedback loop from the ground along with tweaks and alterations depending on the response.
Second, the focus has consistently been on targeted delivery of cash and benefits to the most vulnerable parts of society where the money was more likely to be immediately spent rather than merely saved for a rainy day as middle class financial behaviour often tends to lean towards, thus creating money flow in the economy. A crisis in countries like India leads to an expanded rate in household savings.
By targeting the stimulus sharply on rural jobs and cash and benefits to the vulnerable, especially in village communities, the government ensured that support went to the most-needed sector in the country. This is also why agrarian growth has remained resilient in the face of contraction in the wider economy in 2020 and why sales from two- wheelers and tractors to fertiliser off-take have remained strong and steady even in a year of unprecedented crisis.
Special mention must be made here of the PM Kisan Yojana that shifted direct cash transfers to around 10 crore farmers, distributing about Rs 90,000 crore since its inception in December 2018, a significant part of it paid during the Covid-19 lockdown.
Whether it is the rise in wages under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) or the special ex-gratia payments for around 200 million underprivileged women during the extreme lockdown, a vast portion of government help during Covid-19 has trickled down to the grassroots especially in non-urban areas, leading, unsurprisingly, to a record turnout of women voters in recent state elections around the country. Further reforms of agrarian markets, as rolled out recently, are likely to bring in much-needed private investment in the agricultural economy.
The push for domestic sale and purchase of local products under Atmanirbhar Bharat has further propelled bumper sales at the Khadi and Village Industries Commission (KVIC), including a record of four days of sales of more than Rs 1 crore (per day) in the 40 days following October 2—a special day for khadi as it is the birth anniversary of its strongest proponent, Mahatma Gandhi—from just one KVIC store in New Delhi.
This after the KVIC already had a record-breaking turnover of nearly Rs 90,000 crore in 2019-20. KVIC sales also go in a large part to producer communities in rural areas like weavers and others. The third pillar of India’s recovery has been the furious spread of digitisation. From mass transfers of cash benefits with little leakage to fuelling all-time-high foreign direct investment in the first quarter of the current fiscal, especially in its tech companies, the spread and depth of digitisation in India is unprecedented today.
This is set to grow deeper as broadband penetration grows and elements like artificial intelligence are injected into the mix. There is no country in the world that offers the volume and diversity of data in a democratic set-up that India does, and the monetisation of this market and data has only just begun in significant quantum. This will grow exponentially as more granular data and that from the hinterlands are progressively unlocked.
If this recovery holds, India is likely to emerge from Covid-19 having delivered relief to the much-needed rural and semi-rural sector, still the biggest employer in the economy and without any major crisis in the depletion of state funds due to vast relief measures.
It would also emerge having incentivised both domestic spending and manufacturing (not only for domestic consumption), notably through popular production-linked incentives. This may yet turn out to be the start of the long-awaited turnaround in Indian manufacturing and the trigger towards a reformed agrarian sector.
Hindol Sengupta (hindol.opinion@gmail.com)
Vice President & Head of Research at Invest India, GoI’s national investment promotion agency