THE GIST of Editorial for UPSC Exams : 16 September 2020 An economic disaster foretold(The Hindu)

An economic disaster foretold(The Hindu)

Mains Paper 3:Economy 
Prelims level: GDP growth 
Mains level: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment


  • According to data released by the Ministry of Statistics and Programme Implementation of the Government of India on August 31, 2020, real quarterly GDP contracted by a whopping 23.9% between April-June 2019 and April-June 2020.
  • This magnitude of real GDP decline is unprecedentedsince the country started publishing quarterly GDP estimates in 1996.

But is a bigger one in the offing?

  • This is an economic disaster, no doubt. 
  • According to the Organisation for Economic Cooperation and Development, India’s real GDP contraction between April-June 2019 and April-June 2020 has been the largest among 13 large economies of the world.
  • China is the only country which saw a positive growth of 3.2% in that period.
  • However, even that reported contraction of the Indian economy in all likelihood is an underestimate for reasons of omission of statistical information and commission of policies of insidiousintent.

An underestimated disaster:

  • The unorganised sector forms a significant part of the Indian economy.
  • According to some estimates, it accounts for 45% of output and 93% of employment of the working population.
  • While data collection methods have undoubtedly improved over time, coming up with reliable estimates of value added in the unorganised sector is challenging. 
  • They have become misleadingly unreliable due to the sudden shock of the lockdown imposed by the Central government to deal with the COVID-19 pandemic.
  • The lockdown has hit the unorganised sector disproportionately hard, as did the previous shock of demonetisation.
  • We are told that employment in the last quarter has increased somewhat, but these are mostly self-employed persons who have now returned to the market place but earn far less because customers’ purchasing power has significantly declined.
  • While they can technically be counted as being employed in terms of working time, they can only be considered grossly underemployed in terms of income earned.
  • And this gap between employment and earnings is likely to grow without injection of massive purchasing power by the government directly into the unorganised sector.

Can agriculture help?

  • The sectoral pattern of real GDP decline provides important information.
  • The three sectors which contracted the most were construction (at -50.3%), trade, hotels, transport, communication and services related to broadcasting (at -47%) and manufacturing (at -39.3%).
  • Large parts of the first two fall in the unorganised sector underlininghow the lockdown has disproportionately hit the non-agricultural unorganised sector.
  • The only sector which did not contract was agriculture, and that was because of a good monsoon year.
  • It grew between April-June 2019 and April-June 2020 at 3.4%. However, in the present circumstances, agricultural growth will not help much in economic recovery.
  • Agricultural output has risen, but agricultural income will not rise correspondingly due to the same lack of purchasing power in the unorganised sector for buying agricultural products.
  • We are likely to face again, perhaps on a bigger scale, the same obscenesituation of foodgrains piling up while millions go hungry.

A Still bleaker future:

  • India’s economic woes did not start with the pandemic. Its economy has been slowing down for the last couple of years.
  • The year-on-year change in real GDP for the economy shows that the growth rate of quarterly real GDP has been slowing down at least since the fourth quarter of 2017, declining from 7.6% in Q4 2017 to 3.3% in Q1 2020.
  • Ill-conceived measures of the Central government have harmed the economy. In November 2016, demonetisation provided the first negative shock.
  • The second one, in the form of the Goods and Services Tax in July 2017, came even before the economy had time to recover from the first shock.
  • All this played out on the canvas of an economy where financial fragilitywas increasing due to unaddressed problems in the banking sector.
  • Increasing financial fragility coupled with negative policy shocks halted the trajectory of rising growth, and the lockdown has sent the patient who was already ailing into a coma.
  • Can the economy recover in the foreseeable future? In theory, yes, but in practical terms, no. The reason?
  • The government is not interested in avertingan economic crisis for the poor.
  • It is interested in ensuring that the handful of its industrialist friends do well irrespective of the state of the economy. And by all accounts they are doing well.
  • Mukesh Ambani, who has now become the fourth richest person in the world, is only growing richer by the day; Adani too is progressing at a highly satisfactory rate, monopolising airport development.
  • This rosy picture should not be spoiled by irrelevant facts like a 23.9%% contraction of the real economy.


Prelims Questions:

Q.1) With respect to “Chandrayaan-3”, consider the following statements:

1. It is joint mission between NASA and ISRO to find the presence of water and oxygen.
2. It will include a Lander, Rover and an orbiter.

Which of the statements given above is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: D

Mains Questions:

Q.1)How COVID 19 induced lockdown affected the economy as a whole, challenges brought by it?Describe its impact on GDP. What are the various steps were taken by the government?