Let’s leave it on coronavirus to determine growth estimate

In the past few weeks, global and domestic credit rating agencies, brokerages and international financial institutions have been competing with one another to project the growth estimates of economies, especially the emerging ones, which have been the hardest hit due to COVID-19 epidemic.

For India, the forecast for the current financial year (2020-21) ranges between 4% and 2%, with one of them – Goldman Sachs – giving the bleakest 1.6%. This is a 30-year low estimate and worse than the proverbial ‘Hindu rate of growth’ of around 3.5% that the country averaged in between 1960s and 1980s.

On Tuesday, the International Monetary Fund (IMF), which has already predicted that more than 170 countries will suffer a reversal of living standards in 2020 due to the sudden onset of COVID-19, will release its new global economic forecast –likely to be the grimmest of all its predictions in the recent times.

For latest updates and live news on coronavirus, click here

The current pandemic, one of the gravest medical emergencies in the human history, has plunged the world economies closer to recession. It may be true that India’s economy too will fall like a pack of cards. No dispute on the fact that the economies will face an unprecedented fall after channeling most of their resources to fight the virus. But, how does one quantify the growth or decline at the time of an epidemic, especially when the virus has yet not stopped from spreading.

In fact, its curve has become steeper, leaving the world in an uncharted territory.

Isn’t it an exercise full of risk to give a forecast for the economy when each number is subject to a large revision with every incoming data on the pandemic?

RBI to wait for some time

Thankfully, the RBI has so far not given any projection on India’s economic growth in 2020-21. It was due to give it during the April’s monetary policy exercise but said it needed some more time to assess the extent of damage caused by the virus. A handful of other economists have suggested that a rebound in economies will depend on how quickly the governments across the globe are able to curb the disease that needs accelerated health expenditures and fiscal stimulus to prop up the economy during the pandemic.

But regretfully, India’s record has been dismal on that front despite nudging by economists, businesses and even the global financial institutions. IMF Chief Economist Gita Gopinath recently said while a substantial fiscal stimulus package will push up the fiscal deficit and debt-to-GDP ratio of economies, lack of proactive fiscal policy by governments could put them in a worse place with the collapse of economic activity.

“If you don’t do what you are doing now, you can actually end up in a worse situation because economic activity will collapse so severely that your debt-to-GDP will be even worse. So things could be worse if you didn’t do what is needed right now. I think that is something everybody recognises at this point,” according to Gopinath.

While the US has approved a stimulus package of $2.2 trillion the largest in history, including a $500 billion fund to help hard-hit industries and direct payment of up to $3,000 to millions of US families.

The United Kingdom gave a 360 billion pounds in loan guarantees to businesses, promised to pay up to 2,500 pounds of wage bills if staff put on leave and exempted industries from paying VAT.

The Japan government approved stimulus package of 108 trillion Yen ($990 billion) amounting to 20% of its GDP and China unleashed an economic package equivalent to 5% of its GDP.

The neighboring Bangladesh committed $8.6 billion of financial help, which is 2.5% of its economic output, to its citizens to better fight the virus.

South Korea gave an economic rescue package of 100 trillion won and presented a second supplementary Budget for emergency cash requirements.

India has so far given only Rs 1.70 lakh crore towards economic relief to the needy, which is not adequate given its population of 130 billion of which more than a quarter are under poverty line. The International Labour Organisation last week flagged concerns that about 40 crore more workers are at risk of falling into poverty due to the continuing health crisis.

Economist Esther Duflo have flagged concerns that the lockdown would not be effective as people will violate social distancing norms and come out on streets if the government does not provide cash to them to sustain their livelihood.

Nobel Laureate Duflo has even said that once those affected by hunger come out on street, not even police can do much to restrain them.

The World Bank in its South Asia Economic Focus report released on Sunday said, India’s economy, the region’s biggest, is expected to grow 1.5% to 2.8% in the fiscal year that started on April 1.

“The green shoots of a rebound that were observable at the end of 2019 have been overtaken by the negative impacts of the global crisis,” the World Bank said.