History has recorded the unprecedented influenza pandemic during 1918-20 with 12 million deaths. The plague killed about one million. These horrific stories haunted the Indian development scenario for long. The passing year of 2020 will go down in history with dreadful details of misery and deaths. The worst episode of the Covid-19 pandemic is the 10.1 million cases and deaths of over 1.5 lakh. The only silver lining was that 9.72 million recovered.
The Indian economy is slated to lose over Rs 40,000 crore due to the inactivity in the vibrant economic sectors. The lockdown was necessitated to stop the spread, but impacted crucial sectors of the economy. Daily-wage earners and unorganised sector workers suffered for a livelihood. People staying indoors and markets remained closed, along with the total shutdown of economic activities, causing severe loss to the economy. The economy of the state and also the country will take time to get back on track.
Economic growth
The year 2020 started with a lot of euphoria with foreign direct investment coming into India and the Indian corporate sector trying to boost its presence. Karnataka was no exception. The prospects of the closing 2019 were not very encouraging either for Karnataka or for the country. The economy has slowed down from about 6.6% growth in GDP to about 4.5 % (a six-year low).
The impact of the pandemic was devastating as soon as the year began. The first case of Covid-19 was recorded in Kerala by the end of January, with a young student returning from Wuhan. In Karnataka, it was on March 28. The spread was quite fast and largely engulfed metropolitan cities. The rate of infection was rising significantly with Delhi, Mumbai, Pune, Chennai and Kolkata competing with each other, with Bangalore close on the heels.
A countrywide lockdown for 21 days was declared on March 24. The successive lockdowns hinted at an emerging recession, with growth in successive quarters nose-diving. Economic growth during the first two quarters of 2020 suffered significantly and India’s GDP slumped by 23.9 % on year-to-year basis in the first quarter April-June 2020. It was certainly not a shocking outcome (many economists called it so), as the conditions were such that there could be no other possibility.
Most of the MSMEs were shut down, hotel industry completely closed, railways and airlines shut their operations so also the other transport services. Urban and rural informal sector stopped all activities and most of the malls and shops remained closed. How can anybody expect increase in GDP with such gridlocked economic activities?
The second quarter contraction in GDP was 7.5 per cent after the record slump of 23.9 per cent, bringing a sigh of relief. Signs of the economy limping towards recovery were visible. The contraction in the third quarter is expected to be in the vicinity of 2 per cent. Even though this seems to be an artificial feel-good factor, the devastation to the economy is certainly unprecedented.
“Trade and hotels” witnessed a slump of 47% in the first quarter and 15.6% in the second quarter. It picked up in the third quarter to reach the positive side. The “construction” sector suffered the worst with a slump of an unprecedented 50% and recovered to record -8.6 per cent in the second quarter. It improved substantially in the third quarter. Manufacturing suffered 39.3% in the first quarter to recover to +0.6 per cent. It is only agriculture that recorded positive growth of above 3% in the first two quarters and sustained that in the third quarter also. Agriculture remained as saviour of the economy, but agriculturists seem to have suffered.
Employment and poverty
Unemployment and poverty are the two lurking predators for the Indian economy. Like the adage goes, “Devil takes the hindmost”, the poor and unprotected unorganised labourers suffered the most. There are rough estimates given by CMIE about unemployment, with the rate in the range of 7 to 23 per cent. It had reached an all-time high of 23.5% in April 2020.
The unemployment was because of the increased casualization of workforce as most of the industries have outsourced the works and follow ‘hire-and-fire’ policies since the mid-nineties. Therefore, the slump was strongly felt in construction, hotel and real estate sectors followed by MSME. The exodus of labour from cities to villages included most of those whose lifeline was wages from the unorganised sector. They were largely engaged in 3D jobs — Dirty, Dangerous and Demeaning.
These were thrown back in the ranks of acute poverty and migrated to their rural habitat. The IIPS estimated about 15 million migrant of whom more than 10 million might have chosen to return to their villages. These definitely swelled the poverty numbers, besides those who lost their jobs. As a result, poverty has certainly increased in urban areas due to lack of jobs and income, and in rural areas as the poor went back to their villages.
Karnataka: sailing the middle path
This year brought into discussion the federal structure and politics due to the differential impact of Covid-19 across states. A significant revenue dip was witnessed due to five lockdowns and, at the same time, the Central Government’s devolution of funds to states also has shrunk significantly. There are no two opinions that the central revenues also got heavily eroded.
Karnataka, like in all aspects, had been sailing the middle path. Maharashtra, Delhi, Kerala, Rajasthan had been the worst suffering states. During October 2019, Karnataka had received Rs 1,01,007 crore revenue, but in October 2020, the revenue stood at Rs 78,232 crore, recording a fall of 22.55%. The major loss was from the Government of India devolution of funds which was put at Rs 10,835 crore, recording a strong decline of 37.34% than expected.
To make matters worse, tax revenue also declined by 17.74% at Rs 47,495 crore. Commercial taxes too recorded a drop mainly due to closure of entertainment hubs and loss in excise duty due to ban on liquor sale. As a result, GSDP of the state also declined significantly. One of the major losses in revenue was from Excise Duty as well as Stamps and Registration Duty. The revenue loss in Stamps and Registration was 27.37% whereas, in the Excise duty it was only 5.29% because of the opening of liquor sale from May 3.
Karnataka was among the first few states to invoke The Epidemic Disease Act of 1897, and the government constituted task forces up to the taluk level to deal with the epidemic. The State Government followed the 5T policy — Trace, Track, Test, Treat and Technology. Karnataka has 8,90,000 recovered cases as against 9,15,000 infected cases, recording a high recovery rate. As a result, the pandemic control has been significantly better than the most heralded Kerala model.
The government expenditure also contracted by 5.42 per cent only, without cutting down any of the social welfare or development schemes. The state seems to have had a reasonably dealt with the economic onslaught by sailing through the moderate path and posted better performance compared to many similarly placed regions.
Recovering through packages
In the light of the grave economic situation, the philosophy of recovery was trying to re-establish supply by providing incentives in the production sector and creating demand by increasing purchasing power in the hands of people. The Finance ministry announced in March a Rs 1.7 trillion package, followed by a Rs 20 trillion package announced by the Prime Minister on May 15.
In November, again Rs 2.65 lakh crore worth of schemes were announced by the Finance Ministry. The efforts were to rejuvenate the MSMEs and bring them back on the track of production. Similarly, Rs 1.7 lakh crore Pradhan Mantri Garib Kalyan Yojana was announced, creating a safety net for the poor. Through the PM-KISAN scheme Rs 6,000 were credited in three instalments in the accounts of the farmers. Wages under MGNREGS were revised upwards from Rs 182 to Rs 202 per day. A stimulus package for agriculture and allied schemes got Rs 1.63 lakh crore. These schemes were declared in five parts, totalling to about Rs 1,295 thousand crore.
As excise revenue dropped in most states, they were allowed to open sale of liquor and which enhanced excise revenue flow to the governments.However on the economic front, the year has been a rough ride, including on a large number of political issues pertaining to GST refunds to states, the Union Government’s grants for states as well as a few federal issues like the farm laws passed recently. The production activities in the economy began limping back to normality, but not in full-fledged mode. In order to get back to the growth trajectory, it is estimated that at least two years will be required.
In the life of every country, there are certain upheavals through which the economy, polity and society have endured testing times. The year 2020 gave a test of such hard times to all of us and fortunately, the people of India could brave the situation effectively. Now let us hope that 2021 will witness economic recovery and reach the 2010 level.
(The writers are from the Institute for Social and Economic Change, Bengaluru)