Former RBI Governor D Subbarao, on Wednesday, spoke at Times Network India Economic Conclave, which kicked off on Tuesday. He briefed the media on the topic ‘Opportunities & Threats to the Indian Economy in this Decade’.
Forwarding the viewpoint of the Indian administration, which has time and again on various occasions has reiterated, about India’s strong economic recovery, Subbarao added that “It is a matter of enormous comfort that India has recovered from the crisis caused by the pandemic. The recovery has come much sooner and the downturn has been less deep than we feared.”
Last year, India saw a significant contraction of 23.5% in the Indian economy, which accounted for a significant drop in the economic activity at that time. Subbarao, talking about the desirable side of the picture drew a comparison between the conditionalities of last year and the present scenario and stated, that India has recovered and is doing a lot better a year after the pandemic struck.
“If you turn your mind back to around this time last year or even six months ago, we were concerned about the economy contracting by 10% or even 15%. Now we are told that the contraction this year could be 8% which is bad but comforting relative to 15%. Next year, we are told there is going to be a rebound. Estimates for growth next year are anywhere from 11% to 11.5% from govt &RBI and 13.5% to 14% from investment banks and analysts.” He added.
A concern that needs to be acknowledged is that India’s significant drop in the economic activity was not only due to the pandemic but also due to the fact that India was already seeing a drop in the economic growth in the pre-pandemic period. Four years ago, the world organizations wrote on impressive growth story of India, making it the fastest growing economy that grew at 8%.
Three years ago 7% growth again was considered quite commendable to other nations. This fiscal year Indian authorities have projected a contraction of 8%. Therefore, if next year India sees a sharp rebound of 13.5% or 14% on a lower base, the economic output will still be lower than the pre-pandemic growth output.
Das stated that “As much as the recovery is comforting, there is going to be a permanent loss of output. The second and more important concern is that the economic crisis in the wake of the pandemic has accentuated inequalities. We talk about V-shaped recovery, actually, it is a K-shaped recovery.”
The facts spewed by the former RBI chief can be backed by a report, which claimed that 32 million Indians were pushed out of the middle-class due to the pandemic. Thus pandemic, created stark inequalities in the Indian society.
Subbarao highlighted that while the upper segment of the population has indeed seen a V-shaped recovery. They have seen an increase in their incomes. Their incomes have been protected or have gone up. Their wealth has gone up so their experience has been positive in terms of income and wealth.
On the other hand, the lower segment of the population has witnessed a loss of income. This is due to the fact that the salaried jobs in the lockdown months were severely affected . Additionally, most of the impact was taken by the MSMEs sectors and the unorganized sector where 90% of such jobs existed.
Thus, the low single digit growth in wages in the last two quarters is emphatically very low by historical standards which presented a stark contrast to the extraordinary profits earned by the companies. Shockingly, wages grew by mere 3.8% in the quarter of September 2020, whereas the average year on year growth over the past 60 quarters has been of the order of 13%.
Dispelling unfavorable public opinion on disinvestment, Subbarao argued that disinvestment in public sector companies is not akin to selling the family silver. He said at the time of independence, the government invested to set up businesses in face of very little private capital.
But now when there is no dearth of private capital, the government should focus its energies on investing in education, health and other people-centric areas instead.