Rebooting Economy XXVIII: Is India poised for agriculture-led economic turnaround?

It would be naive to expect agriculture providing jobs to about 43% of the workforce and sustaining 70% of the population living in rural India with a meagre share of 14.5% in national income (GDP) to drive growth, especially when it is going through unprecedented job and income loss

Prasanna Mohanty | September 17, 2020 | Updated 13:55 IST

The much-hyped Agriculture Infrastructure Fund of Rs 1 lakh crore is a misleading scheme since the government is not going to set up a fund or provide loans to farmers. (Photo: PTI)

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The government is banking on a strong agriculture-led economic revival since it is the only sector that witnessed a positive growth of 3.4% (GVA at basic price) in Q1 of FY21, the rest recording big negative numbers to take the overall rate to minus 22.8% in GVA (minus 23.9% in GDP).

The other reason for the government's optimism is 8.54% higher sowing area for Kharif crops. Since Kharif crops are harvested in October-November, by which time Q2 of FY21 (July-September) would be over, the actual harvest would be anybody's guess for Q2.  

Nevertheless, does 8.5% growth in Kharif sowing area really mean a bumper Kharif harvest? Does a 3.4% growth in agriculture in Q1 mean agriculture can drive growth or revive the economy? Is there reason to be optimistic about the rural economy?

Here is a reality check.

Q1 agriculture growth highly exaggerated

The graph below maps quarterly growth in agriculture (GVA at basic price) to show how this sector providing jobs to nearly half of India's total workforce (53.2% rural male and 71% of rural female engaged in agriculture, according to the PLFS 2018-19 data) has been growing since FY23.

Also Read: Rebooting Economy XXVII: Fiscal mismanagement threatens India's economic recovery

Going by the cyclical and monsoon-dependent nature of agricultural growth, the Q1 of FY21 number is not exactly remarkable.

Besides, agricultural economist Prof. Vikas Rawal of the Jawaharlal Nehru University draws attention to a major flaw in the Q1 growth estimates for agriculture.  

The government's August 31 statement "estimates of Gross Domestic Product for the first quarter (April-June) of 2020-21" reveals a significant change in calculation.  

It says for estimating growth in milk, egg, meat, and wool for the livestock sector and dairying and fish production for forestry and fisheries sector in Q1, it used "production targets", not actual production.

That has never been the case in spite of the obvious shortcomings in the quarterly GDP estimates.  

The quarterly GDP estimates are based on select organised sector indicators to map unorganised services sector as well but not agriculture, for which actual production figures are used. A case in point is the two previous Q1 estimates for FY20 and FY19.

But that is not the case for Q1 of FY21.  

Since these two subsectors (livestock and forestry and fisheries) accounted for 47% of GVA in Q1 of FY20, the error margin in using "production targets" would apparently be exaggerated. (The rest 53% of agriculture GVA was on account of crops, including fruits and vegetables.)

Also Read: Rebooting Economy XXVI: Derailment of economy is not 'Act of God', it is 'Art of Misdirection'

There is every reason to believe that the livestock and forestry and fisheries subsectors were seriously impacted by the sudden lockdown. All activities came to a standstill for several weeks, farm labour disappeared, transport was shut, mandis were non-operational despite exemptions granted and demand plunged, forcing farmers to dump milk and vegetables. The supply chain had been completely disrupted.

Prof. Rawal also contests 3.4% growth in agriculture GVA on the basis of mandi sales too.  

He compiled and compared market transactions in agricultural produce from the government-run portal 'agmarknet.gov.in' for Q1 of FY20 and Q1 of FY21. He found a significant fall in mandi sales (in value) across India, ranging from minus 31% for cereals to minus 90% for flowers.  

His findings are presented in the following graph.

Agriculture production data (or any production for that matter) means little for GVA estimates if these produce, particularly the perishables which perish in days and weeks, are not sold in the market.  

Assuming that agriculture can drive or lead economic revival is flawed for another reason.

The following graph maps how the share of agriculture has been falling consistently since FY12, reaching 14.6% of the total GVA in FY20. For a meaningful impact on the rest 85.4% of the economy, the agriculture GVA has to register a quantum jump.

Here is how.

The average growth in the quarterly agriculture GVA for the past 20 quarters is 4%. Assuming it would grow by 5% in Q2, the addition to the overall GVA would only be 0.7%.

There are other reasons to be sceptical too.

Kharif crop harvest likely to fall  

The Kharif sowing may be higher by 8.5% in area but latest ground reports suggest severe damage to crops due to deviant monsoon.

Also Read: Rebooting Economy XXV: How a series of economic misadventures derailed India's growth story

According to a news report of September 11, Madhya Pradesh witnessed a deficient rain in July and heavy rain in August-end, both damaging soya bean and pulses (urad). The state is the largest producer of these crops. Excess August-end rain has also damaged Kharif onion in Maharashtra and north Karnataka.

Another report of August 26 says Gujarat, the largest producer of cotton and groundnut, received excess rain in August, damaging its crops. This happened in Telangana too.

All these would reduce Kharif harvest.

Threat from rapid spreading of COVID-19 to rural India

In the meanwhile, the COVID-19 cases are rapidly rising in rural India, threatening economic growth further.

A September 3 research paper by the largest public sector bank SBI, "Three Months After Unlock", shows the share of new virus cases from rural districts has increased dramatically in the months of July and August (part of Q2).

From 24% of new cases in April, rural districts contributed 51% in July and 55% in August. Among the top 50 worst-hit districts in new cases in August, 26 are rural ones from Andhra Pradesh, Maharashtra, Karnataka and Uttar Pradesh. Four of these districts contribute more than 10% to respective GSDP.

The report also expresses concern over "excess" rainfall, at least in five of those districts in August damaging Kharif crops.  

Also Read: Rebooting Economy XXIII: What stops India from taking care of its crisis-hit workers?

Further, it points out that though tractor and two-wheeler sales increased in July and August, fertiliser sales and diesel consumption dropped significantly in those months - as the graph below shows.  

A drastic fall in fertiliser sale (green line) in July and August is of particular concern because that is the time for fertiliser use. Kharif crops are sown in June-July.

There are other indicators too.

The RBI's August 25 report (Annual Report of 2019-20) said: "Meanwhile, high frequency indicators that have arrived so far point to a retrenchment in activity that is unprecedented in history. Moreover, the upticks that became visible in May and June after the lockdown was eased in several parts of the country, appear to have lost strength in July and August, mainly due to re-imposition or stricter imposition of lockdowns, suggesting that contraction in economic activity will likely prolong into Q2."

Massive loss of jobs and incomes in rural India

There are plenty of indications that job loss and income loss are far greater in rural areas, compared to urban areas, even though the government has deliberately adopted an ostrich-like attitude by not tracking job and income losses. For a government to then create hype that agriculture would lead the economic recovery amounts to leading the Indians down the garden path to their eventual doom.

The SBI research paper shows that the steam has run out of the rural job guarantee scheme MGNREGS in July and August - as the graph below shows. Both employment and average wages fell drastically, indicating that funds dried up.

The fall in the average wages in rural areas would mean any or both: (i) fake entries for MGNREGS jobs provided because its wages are fixed and the average can't fall or (ii) drastic fall in other rural jobs, indicating a growing loss of jobs and incomes.  

The latest survey on rural distress comes from Gaon Connection, a rural media platform and Centre for Study of Developing Societies (Lokniti-CSDS), which was published in mid-August.

Its main findings (based on interviews with 25,300 respondents from 179 districts in 20 states and three union territories) two months into the lockdown were: (a) 71% households reported drop in monthly income (b) over 68% faced "high" to "very high" monetary difficulties (c) 23% borrowed money, 8% sold valuables (phone, watches), 7% mortgaged jewellery and 5% sold or mortgaged land (d) 56% dairy and poultry farmers faced difficulty to sell, 35% did not get the right price (e) more than half of farmers harvested their crops but only a fourth could sell them on time (f) work shut down for 60% skilled and 64% manual labourers and (g) only 20% found MGNREGS work.

Also Read: Rebooting Economy XXII: Why is India reluctant to provide unemployment allowance?

An earlier study, in April, by the Chicago University and University of Pennsylvania had shown that rural households had been hit harder than their urban counterparts. It said that "protective effect" found in highest-income households is a predominantly urban phenomenon, with 81% rural high-earning households experiencing a decline in income. The lowest income group was hit the most with more than 80% reporting a decline.

Naive to expect agriculture to drive growth

There are many reasons to discount faith in agriculture to drive economic growth.  

Not only 70% of Indians live in rural areas and largely depend on agriculture, but its share in the total workforce is also around 43% (43.2% in 2019, according to ILO database). Besides, 55% of the total agriculture workforce is landless labour and they number 112 million. (For more read "Coronavirus Lockdown I: Who and how many are vulnerable to COVID-19 pandemic")

Add millions of migrants going back due to the lockdown and job loss sharing the same total agriculture pie of 14.6% of national income and a clearer picture would emerge.  

India's recent rural development programmes are unlikely to make any difference.

The flagship PM-Kisan scheme provides Rs 2,000 a year (Rs 500 a month) to a farmer, which is grossly inadequate for one person's survival. The MGNREGS work is a relief measure (less than minimum wage for rural areas and agriculture wage) providing jobs for a maximum of 100 days, but the average days of work given in five fiscals, including FY21, remains 45 days.

The Garib Kalyan Rozgar Abhiyaan (GKRA) launched for migrant workers who went back home is an amalgamation of existing rural development schemes with no additional funding and a zero-sum game since it would be at the cost of existing unemployed finding succour through these schemes.  

Also Read: Rebooting Economy XXI: Will NEP 2020 bring quality and equity in education?

The much-hyped Agriculture Infrastructure Fund of Rs 1 lakh crore is part of the Rs 21 lakh crore relief and credit package announced in May without proper plans or schemes in place. It is a misleading scheme since the government is not going to set up a fund or provide loans to farmers.  

This is a 10-year plan of facilitating loans from banks and financial institutions for which the Centre promises to provide 3% interest subvention (old scheme for any agricultural loan) and credit guarantee (same as pandemic relief for MSMEs). The actual financial outgo in the current fiscal year will be zero since the moratorium on repayment is at play and would be applicable for such loans too.

With such policies and programmes for a sector which is already enfeebled and yet most Indians have no choice but to fall back on it for mere survival, only the very naive would believe that agriculture can drive economic growth or bring it back on track.

Also Read: Rebooting Economy XX: Do developed economies depend on private schooling and funding for quality education?

Rebooting Economy XXVII: Fiscal mismanagement threatens India's economic recovery

Not only India's relief packages are grossly inadequate it is not even spending enough to revive demand in the crisis-hit economy; what is needed is clear: more fiscal spending, not "keeping the power dry" for future stimulus or unrealistic claim of a V-shaped recovery

Prasanna Mohanty | September 14, 2020 | Updated 23:06 IST

India has traditionally been a low fiscal spending state compared to developed economies

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While India's economic mismanagement in the past few years derailed its growth story, plunging the quarterly growth rate to minus 23.9% in Q1 of FY21 - from a high of plus 8.2% in Q4 of FY18, its fiscal policy too has been erratic.

The Centre's knee-jerk reactions to the shortfall in GST collection threatens the very tax regime and with it "cooperative federalism". It is finding new excuses to deny states their legitimate (statutory) GST compensation of Rs 2.35 lakh crore for FY21 and forcing them to borrow from the central bank RBI to meet the shortfall.

The latest justifications are: (i) states have parked Rs 1.8 lakh crore in treasury bills - short-term debt instruments issued by the Centre for 91 to 365 days - and (ii) states have borrowed only 2.75% of their GSDP against their limit of 3%. A Central government official likened this to "keeping the powder dry", an approach, the official disclosed the Centre has adopted in the time of serious crisis.

In the meanwhile, former RBI Governor Raghuram Rajan has warned that "to conserve resources for future stimulus" (keeping the power dry) is "self-defeating" and advised against unrealistic "claiming V-shaped recovery". India should, instead, think why in spite of providing 20% of GDP in fiscal and credit relief packages the US is still worried that it may not return to pre-pandemic GDP level by the end of 2021.

Also Read: Rebooting Economy XXVI: Derailment of economy is not 'Act of God', it is 'Art of Misdirection'

Describing India's Rs 21 lakh crore relief (9% of GDP) as "meagre; primarily free food grains to poor households; and credit guarantees to banks for lending to small and medium (SMEs) firms, where the takedown has been patchy", he sees the need for the government and bureaucrats "to be frightened out of their complacency and into meaningful activity".

Likening the current state of the economy to "a patient", Rajan writes ("The Alarm in the GDP Numbers") that help (relief) is needed now when the patient is fighting the disease, without which "the patient atrophies" and by the time the disease is contained, the patient is reduced to "a shell of herself".

Instead of focussing on boosting fiscal spending keeping deficit aside for now, India is embarking on a venture to expand its tax base in the midst of the crisis.

India's knee-jerk reaction to lack of fiscal resources  

On August 14, the Centre disclosed its intent to track high-value transactions - education fee over Rs 1 lakh, hotel bills over Rs 20,000, life insurance payment over Rs 50,000 etc. - to nail tax evaders.

This is unlikely to help.

India has been tracking high-value transactions and scanning all data sources for years, routinely identifying large numbers of tax evaders also but does little about it. The Non-filers Monitoring System (NIS) is meant for this and has tracked annual information returns (AIRs), centralised information branch (CIB) data and TDS/TCS statements etc.

In 2019, a news report quoted tax authorities saying that 20.4 million cases of 'non-filers' had been identified during 2013-2017, of which 2.5 million were 'dropped filers' - who stopped filing returns. In 2016, another report quoted tax authorities as saying that 6.7 million potential non-filers carrying out high-value transactions in 2014-15 had been identified. (For more read "Taxing the untaxed III: Is govt oblivious to leakages in direct tax collection? ")

What happened to them is not known. No information is available in public to suggest effective action or improvement in tax collection.

Also Read: Rebooting Economy XXV: How a series of economic misadventures derailed India's growth story

A lot is indeed wrong with the Indian tax system.

First, it is a regressive one with high reliance on indirect tax, rather than direct tax as is the case with developed economies. Second, it does not tax agricultural income even when large amounts are routinely claimed as such by non-agriculturists for tax evasion and money laundering. (For more read "Taxing the untaxed I: Why govt should tax agricultural income ")

Third, India does not even have basic information on how many of those filing returns are actually paying tax and how much and whether all known high-net-worth individuals (HNIs) (dollar millionaires) are actually paying tax. Millions of self-employed, professionals and firms file self-assessment returns or pay presumptive tax, which carries huge risks of evasion. (For more read "Taxing the untaxed II: Why India's smaller taxpayers bear heavier burden ")

Fourth, there are a large number of shell companies and tax havens for profit-shifting and tax avoidance by domestic and foreign firms which are merrily operating without let or hindrance because India would not implement its anti-tax avoidance General Anti-Avoidance Rules (GAAR) framed in 2012. (For more read "Coronavirus Lockdown XII: Why the wealthy should be taxed more ")

Here is an interesting development from the US.

US firms shift 52% profit to tax havens

On August 23, tax expert Prof. Gabriel Zucman of Berkeley University presented his analysis of tax evasion by US firms in 2018.  

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He concluded that US firms booked 52% of foreign profits in tax havens, thereby avoiding tax. He also concluded that the Trump administration's corporate tax cut of 2017 did not work since profit-shifting to tax havens is "essentially stable relative to 2017".

The following graph, taken from his analysis, shows the trend in profit-shifting.

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Prof. Zucman also noted another adverse impact of tax havens.

He said, workers are paid very little in jurisdictions with low effective tax (tax haven): in Ireland (tax haven), for every $1 of wage paid to labour, the US firms reported a profit of $9 but in Germany (relatively higher effective tax rate), for every $1 of wage these firms reported a profit of $0.2.  

In 2018, US firms booked more profit in tax-haven Ireland ($98 billion) than in Germany, France, Italy, Spain, Mexico and China combined ($79 billion).

He arrived at these estimates because the US government tracks and makes such data public.

India does not even track profit-shifting.

However, there is some assessment about it.

The World Inequality Lab published a global study, "The Missing Profits of Nations", in April 2020 which provides an estimate for 2015. Prof. Zucman is one of its authors.

The report shows domestic and foreign firms operating in India shifted $9 billion to tax havens in 2015.  

Also, note India had an effective corporate tax rate of 10% then (2015). It cut corporate tax further in September 2019.

Also Read: Rebooting Economy XXI: Will NEP 2020 bring quality and equity in education?

The leading payers in profit-shifting were: US ($142 billion), UK ($61 billion), Germany ($55 billion), China ($55 billion) and France ($32 billion). Barring Germany (11%), all these countries had very high effective tax rates (US 21%, UK 17%, France 27% and China 20%).  

The following extract from this report shows pre-tax profit in $ billion (first column), profits reported by domestic (second column) and foreign firms (third column), profit shifted (fourth column), effective corporate tax rate (fifth column) and loss in corporate tax collection (sixth column).

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India's FDI inflows mostly come via tax havens

India may not figure in the list of corporate tax havens, but it certainly lets tax havens play a major role in its fiscal management.  

The Department for Promotion of Industry and Internal Trade (DPIIT)'s latest data (May 2020) shows nine of the top 10 sources of FDI inflows to India are among the top 25 tax havens in the Corporate Tax Haven Index (CTHI) of 2019. The CTHI lists 64 such jurisdictions.

Together, these nine tax havens contributed 82.8%, 70.5% and 84.1% of total FDI inflows in FY18, FY19 and FY20, respectively. The only one of the top 10 missing is Japan, which does not figure in the CTHI list, and contributed 3.6%, 6.7% and 6.5%, in the respective years.

The share on nine tax havens in the past 20 years (April 2020 to March 2020) is a whopping 78.9%.

Also Read: Rebooting Economy XXIII: What stops India from taking care of its crisis-hit workers?

The graph below captures their share in the past three fiscals (percentage of FY20 marked).

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Three remarkable features of the above graph are:

First, FDI inflows from Mauritius have reduced after India renegotiated its Double Tax Avoidance Agreement (DTAA) with it in 2016 even though it is a partial one and not yet fully operational. (For more read "Taxing the untaxed VIII: How India and multilateral bodies are fighting tax avoidance ")

Second, the inflows from other tax havens have risen dramatically: Singapore, the Netherlands, the US, Cyprus and Cayman Islands.  

Third, though India has renegotiated its tax avoidance treaty with Cyprus and Singapore, there is a jump in FDI inflows from there.

India has signed DTAAs with 96 countries, many of which are tax havens.

India's FDI outflows too mostly come via tax havens

India's love with tax havens is reflected in FDI outflows too, as most such outflows are through them.

According to the RBI data, released in April 2020, 82.6% of total outflows in FY19 were through tax havens - up from 81.7% in FY18.

Also Read: Rebooting Economy XX: Do developed economies depend on private schooling and funding for quality education?

How much of all these constitute round-tripping and profit-shifting is not known.

The government does not track these things.

Like the US, it should, especially since it gives incentives on FDI inflows and cut corporate tax by Rs 1.45 lakh crore for domestic firms amidst the prolonged economic slowdown in September 2019 when the quarterly GDP fell to 4.4%, consistently nose-diving from 8.2% in Q4 of FY18 (more than two years ago).

Last month the RBI disclosed what corporates did with the tax cut: "The corporate tax cut of September 2019 has been utilised in debt servicing, build-up of cash balances and other current assets rather than restarting the capex cycle. These underlying developments suggest that the appetite for investment is anaemic and in need of more reforms."

Also Read: Rebooting Economy XIX: How India relies on low-paid ad hoc teachers for schooling children

India reluctant to push fiscal spending to revive economy

Lack of tax resources is showing in the Centre's inability to spend more to revive demand and boost chances of a quick economic turnaround, in addition to gross ineptitude reflected in not spending what it can.

The finance ministry data shows during April-July 2020, the Centre's total spending is just 11% higher than the corresponding period of 2019. It spent Rs 10.5 lakh crore during this period in the current fiscal, against Rs 9.5 lakh crore spent in the corresponding period in FY19.

The first four months of the current fiscal year are also marked by a 40% fall in net tax collection.

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Another disturbing aspect of the Centre's fiscal spending is a traditionally low share of capital expenditure (capex), which is what drives growth and has a higher multiplier effect (3.25) compared to revenue expenditure (multiplier effect of 0.45).

Also Read: Rebooting Economy XVIII: Does quality education really matter to India?

Data shows, the Centre's capex has been confined to 1.5-18% of GDP, while revenue expenditure is limited to 11-12.2% of GDP.

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India's low tax resources

The problem is not new. India's tax base and collections have been very poor.

Its tax-to-GDP ratio (Centre and states combined) has been less than 20%. In FY20, it was just 18.5% while in FY18 it was 17.8%.

In contrast, the OECD countries had an average of 34.5% in 2018 (of 34 of 37 members for which data is available), with France, Denmark, Belgium, Sweden, Finland, Austria and Italy recording more than 40%. In 2017, the average was 34.2% in 2017. (India's FY19 and FY18 correspond to 2018 and 2017.)

Click here to Enlarge

There are several reasons for India's low tax base and collection.

It has a regressive tax regime in which indirect taxes play a major role: contributing an average of 61.5% of the total tax revenue in the past 10 years.  

That is not the case with developed economies. In the OECD countries, for example, the average share of direct tax was 65% in 2017, the latest year for which data is available.

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India's small 'size of government'

India has traditionally been a low fiscal spending state compared to developed economies.  

Comparative data for 2018 shows, the average government general spending of the OECD countries (data available for 28 countries) was 42% of their GDP. India's was just 18% (Centre and states together) in comparison.

Also Read: Rebooting Economy XVII: Why governments promote shadow banking

Economists describe this ratio as "size of government".  

The following graph shows the relative "size of government" of select OECD countries and India.

Click here to Enlarge

The impact of a bigger size of government or, higher fiscal spending is known.

A 2016 OECD study concludes: "The size and mix of public spending can have a considerable effect on growth and inequality. For instance, too large governments tend to reduce growth, unless governments function in a highly effective way. On the other hand, large governments tend to redistribute more, thereby reducing inequality. Also the spending components, such as government investment, family benefits or subsidies matter for growth and inequality."

What India should be doing to overcome the crisis is clearly not only to stop prevaricating, spending far more but also change its fiscal policy paradigm.

Rebooting Economy XXVI: Derailment of economy is not 'Act of God', it is 'Art of Misdirection'

Part II of this two-part article continues to relook at misadventures that derailed the Indian economy, threatening dreams of millions of "aspirational" Indians. Instead of a serious and meaningful debate, India continues to grapple with constant and systemic "misdirection" in multiple sense of the word

Prasanna Mohanty | September 11, 2020 | Updated 17:52 IST

When governments indulge in misdirection, governance is more likely to be forgotten and crisis more likely to worsen

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The economic misadventures that began with the introduction of 2011-12 GDP series in January 2015, using deeply flawed database (MCA-21) to raise GDP growth, and continued with the demonetisation in November 2016 and GST in July 2017 - both without thinking, planning or preparing - continued right into the pandemic-induced lockdown and subsequent unlocking of the economy, worsening the health and economic crises in the process.

Here are some of these economic misadventures.

GDP back-series: Niti Aayog's data fudging to lower UPA-era growth  

When the new GDP series (2011-12 base) was released in January 2015, the back-series data was not released, which is a normal practice and critical for comparative analysis.  

The back-series data was released three years and 10 months later on November 28, 2018. It stopped at 2004-05 because the data and methodology it used could not be worked back to 1950-51, the usual practice, thus robbing its long-term value and would be junked from a long-term perspective.  

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This back-series cut down the growth rate of the UPA era - reproduced below. The dotted line shows the UPA era growth rate in the 2004-05 series.

Click here to Enlarge

By this time (November 2018), it had come to public notice that Niti Aayog had twice rejected the earlier back-series calculations of government-run agencies for showing a higher UPA era growth than that of the NDA-II.  

Niti Aayog did so, first under vice chairman Arvind Panagariya and then Rajeev Kumar, even though it has neither domain expertise nor locus standi. (For more read "GDP base year row: What's the problem with re-basing India's growth calculations ")

This blatant data fudging continues through a series of retrospective revisions in GDP, often lowering the previous year or quarter data to artificially raise the current growth rate. Thus, the GDP data no longer reflects the actual ground realities.

The last retrospective revision was on February 28, 2020 when the growth rate of Q1 of FY20 (constant prices) was pushed up to 5.6% - from 5% declared on November 29, 2019.  

Simultaneously, the Q2 of FY20 growth was pushed up from 4.5% to 5.1%.

Such data manipulation has reduced India's economic statistics into a vanity project.  

For example, the Periodic Labour Force Survey (PLFS) of 2017-18 was first junked when its content leaked out in January 2019 showing a 45-year-high unemployment rate and then released in May 2019 after NDA-II had secured a second term in office.

Again, the Household Consumer Expenditure Survey of 2017-18 was junked for showing that 'real' household consumption expenditure had fallen for the first time in 40 years - from Rs 1,501 in 2011-12 to Rs 1,446 in 2017-18, in a leaked report - and remains so now.

What this survey conveyed is that the economic health of Indian households is going down. This was confirmed by a Niti Aayog report of December 2019 which showed poverty, hunger and income inequality had grown in 22 to 25 states and union territories, of the 28 it mapped in 2019 from its baseline index of 2018. (For more read "Budget 2020: Niti Aayog shocker; Poverty, hunger and income inequality up in 22 to 25 States and UTs ")

COVID-19 strikes: Unthinking locking & unthinking unlocking  

The graph below maps the exponential growth in COVID-19 cases in India and the total case counts on the day of the lockdown on March 25 and the subsequent unlocking phases.

Click here to Enlarge

Do India's decisions to lockdown and unlocking make sense?

India locked down when the total caseload stood at 657 and started unlocking when the number had risen to 198,370. The Unlock 4.0 started from September 1 when the total cases were 3.8 million.  

On July 27, 2020 Prime Minister Narendra Modi told the nation that India was better placed than any other country in fighting the pandemic because it took right decisions at right time. A fortnight later, Nobel laureate Abhijit Banerjee countered, saying that India erred in entering and exiting the lockdown hastily.

On September 3, 2020, India's total cases stood at 3.85 million, new cases at 82,860 and death count at 67,486. The total cases are likely to be far more because India's test per million people is among the lowest at 2,788 (on September 3), while the US and Brazil have a testing rate of 18,986 and 18,802, respectively.

India is the only known country in the world that does not disclose its total virus count.

It reveals the daily count and replaces it every single day to make it impossible to know the total, even when the world knows it is contributing the maximum to new cases and death counts in recent weeks.

After the Q1 of FY21 data was released on August 31, showing a steep fall to minus 23.9%, and it turned out to be worse than all major economies in the world; the Chief Economic Advisor Subramanian Krishnamurthy put the blame on (i) exogenous shock (pandemic) and (ii) more intense lockdown than other major economies.

Also Read: Rebooting Economy XXII: Why is India reluctant to provide unemployment allowance?

Both the latest GDP numbers and the COVID-19 numbers demonstrate that Krishnamurthy couldn't be farther from the truth.  

Krishnamurthy also kept repeating that India would witness a V-shape (quick) recovery. Just six days earlier, the RBI had released its 2019-20 annual report warning of darker days ahead with facts and figures.

It said the upticks seen in May and June (part of the Q1 of FY21) in some economic activities "appear to have lost strength in July and August...suggesting that contraction in economic activity will likely prolong into Q2".  

The actual drop in Q1 of FY21 is likely to be far worse since the quarterly GDP estimates are based on the organised sector indicators (except for agriculture), largely ignoring the unorganised sector that contributes 47% to the GDP (as assumed while finalising the 2011-12 GDP series) and took a bigger hit - for the third time since the demonetisation and GST fiascos.  

Response to COVID-19: No plan, no vision, no effort  

The Centre's response to the pandemic reflects incompetence in managing it.  

The sudden lockdown from the midnight of March 24-25 caused millions of job losses overnight, especially for causal and self-employed workers, just as did the demonetisation in 2016. It also immediately choked airports and railway stations with people desperate to reach their destinations, spreading the virus rather than containing it.

Implementing the lockdown was for the state governments, but they were not consulted. It was the same old routine of declaring a lockdown at 8 pm enforceable four hours later at 12 pm (midnight) with no planning, no preparation and no warning - just like the demonetisation. States were pounded by a flood of instructions and notifications covering every aspect of managing their affairs.

And then came a shocking leak in May 2020.

It revealed what was known from anecdotal accounts but not in magnitude: More than 1.5 million international incoming passengers had slipped through the central government-controlled airports between January 18 and March 23 with little testing, quarantine or tracking.

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The Centre's letter to Chief Secretaries of states had passed on the responsibilities to track and manage them. The letter was dated March 26, 2020.  

The Centre had failed in its job it claimed to be doing with due diligence.

Not just that. By forcing migrant workers to stay put for months in urban centres, which are more prone to getting infected by the COVID-19 virus from international incoming passengers, and then letting them go en masse to the hinterland, the Centre helped spread the virus far and wide.  

That is not all.

India isn't tracking job loss caused by the lockdown.

Millions of jobs and livelihood sources have disappeared. Private estimates paint a scary picture, but the Centre is unmoved. It has no estimate of job loss because it is not tracking it. The consequences of its unthinking, unplanned and unprepared responses to the pandemic are borne by millions of hapless Indians.

India has no plans to protect its workers either.

All major countries, for example the 36 members of the OECD club have saved 50 million jobs through "job retention (JR) schemes during the pandemic.  

An OECD report of August 3, 2020 said: "By May 2020, JR schemes supported about 50 million jobs across the OECD, about ten times as many as during the global financial crisis of 2008-09. By reducing labour costs, JR schemes have prevented a surge in unemployment, while they have mitigated financial hardship and buttressed aggregate demand by supporting the incomes of workers on reduced working time." (For more rad "Rebooting Economy XXIII: What stops India from taking care of its crisis-hit workers? ")

India does not have such a scheme, is not even planning and can't claim to have saved one single job.

India is unmoved by another threat: millions are likely to be pushed back into poverty. Multi-lateral agencies are regularly warning about it but India has made no effort to find out, much less remedy it.

A July 2020 study by King's College London and Australian National University estimated that the COVID-19 pandemic is likely to impoverish 114.9 to 525.8 million Indians. (For more, read "Rebooting Economy VIII: COVID-19 pandemic could push millions of Indians into poverty and hunger ")

As for the Rs 21 lakh crore relief package announced by the government, there is very little fiscal spending in it and hence unlikely to stimulate recovery or growth. It relies overwhelmingly on supply side management, mainly by extending credit facility (liquidity supply) while month after month the finance ministry data shows that demand has collapsed, leading to a fall in capacity utilisation and industrial production, much before the pandemic hit.

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The RBI data too shows there are few takers of the liquidity. Its latest report of August 25 admits "appetite for investment is anaemic" and yet the response remains firmly rooted on the supply side. The excess liquidity is ending up with the RBI's own reverse repo account where it has no business to do. (For more read "Coronavirus Lockdown XIX: Where is excess liquidity generated by RBI going? ")  

Hounding Muslims, banging 'thaali' and other diversions  

Blaming Nehru (first prime minister who died in 1964), the Mughals (who ruled before the British) or the Congress for all that is wrong with the Indian economy is routine.

When the pandemic hit, a fresh round of attacks began on Muslims.  

This time the target was Tablighi Jamaat, an Islamic missionary whose members had gathered in Delhi, as they do in March every year, with full government knowledge.  

Yet they were hounded for spreading the virus deliberately to harm India. Overnight, police fanned out the entire country, numbering them, filing FIRs, arresting, putting them in jail and filing charge sheets in double quick time. Many foreign members were blacklisted and deported.  

By the August-end, at least three high courts had dismissed their criminal prosecution and blasted police and their political bosses.  

The Mumbai High Court said that the (Maharashtra) police acted "after getting directions from central government", with "no record...to make out prima facie case". It said the Centre's own records submitted to the court showed such activity (annual gathering in Delhi) "was going on for more than 50 years".  

It called out the Centre for deliberate and malicious targeting of Muslims: "The record of this matter and the submissions made show that action of central Government was taken mainly against Muslim persons who had come to Markaz Delhi for Tablighi Jamaat. Similar action was not taken against other foreigners belonging to other religions."

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It concluded: "Thus, there is smell of malice to the action taken against these foreigners and Muslims for their alleged activities."

The Madras High Court said prosecuting Muslims was "unreasonable, unjust and unfair". The Karnataka High Court quashed FIRs against the Jamaat's foreign members, but not for the Indian members.

Meanwhile, the Indian middle class were engaged in various entertaining activities on their balconies.

On quite a few evenings (and days) the Indian middle class gathered on their balconies to clap hands, bang 'thaalis' (utensils) or lit candles after switching off electric bulbs to show respect for the medicos fighting the pandemic even as thousands of migrant workers walked past in sheer desperation, covering hundreds of miles to home, having lost jobs, shelters and hope for survival.  

India's Chief of Defence Staff General Bipin Rawat, a four-star general, also jumped in.

He told Indians how he is arranging to shower rose petals on the medicos from the sky to honour them. Naval ships were rushed to coasts; helicopters were sent flying all over the country. Medicos were made to line up in the sun for hours to get showered with rose petals.

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During those days if the medicos complained about lack of safety gear for them, they were routinely abused, some soundly thrashed and all were trolled online for their lack of patriotism by many who would have participated in the balcony events.

It was later revealed that while General Rawat and his men were planning and executive aerial rose petal shows in May 2020, the Chinese army was collecting at the Line of Actual Control (LAC) in Ladakh, crossing over to grab a fair bit of land on India's side at several places and where they are believed to remain.  

General Rawat continues to serve India as its Chief of the Defence Staff.  

The art of "misdirection"

"Misdirection" belongs to the world of performing magicians.  

It is a technique magicians use to entertain spectators, though it would perfectly fit into some of the activities in India during the pandemic and earlier.  

Long ago, Nevil Maskelyne and David Devant explained what it involves in their 1911 classic book "Our Magic: The art in magic, the theory of magic and the practice of magic" and is worth reading. 

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Here it goes: "It consists, admittedly, in misleading the spectator's senses, in order to screen from detection certain details for which secrecy is required. It militates against the spectator's faculties of observation, not against his understanding. Broadly, it may be said to comprise three general methods, viz. - Distraction, Disguise, and Simulation. Every means employed by magicians for misdirecting the senses of an audience will be found allied to one or other of those elementary principles."   

The problem with "misdirection" is that it is meant for entertaining spectators, not governance and certainly not fighting health or economic crisis.  

When governments indulge in misdirection, governance is more likely to be a casualty and crisis more likely to worsen.

No more encore please.

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