India’s GDP 2020 Q2: The Misplaced Sound and Fury

If you read, listen or watch, these days, some media outlets in India or outside, it looks like, at the end of 2020 Q2, the India in ending. Headlines read, India  has in the second quarter 2020 the worst GDP performance of -23.7%, the worst in the world. These headlines quietly gloss over the fact that US economy, the number one in the world, in the same quarter suffered 31.7% decline, as per Bureau of Economic Analysis. The intended message of all the sound and fury is that the previous (Congress) government was great. The present (BJP) government is sinking the ship and the worst is that they even don’t know how to fix it as they don’t have any capable people; as if all capable people were pocked by and flew away with the previous government.

Opposition’s Sound and Fury

Former Finance Minister, P Chidambaram of Congress party, now the opposition party, said “the GDP estimates should be a matter of “surprise and shame” to the government that was seeing ‘green shoots’ on several days during the first quarter and did nothing to cushion the fall by taking suitable fiscal and welfare measures”.(HT, Sept 1, 2020)

But alas, that does not cut much ice with the knowledgeable and reasonable people as  that is the  standard speech of Indian opposition parties and their partisan media’s blare.

India’s GDP Growth Rate During 2004- 2020

It would be interesting to see the numbers of India’s growth rate during 2004- 2020. Why should this period be of interest? Because, during 2004-2014, the Congress (and its coalition) Government, wherein P Chidambaram was the Finance Minister, ruled the country; and from 2014- 2020, BJP (and its coalition), under Narendra Modi, has been ruling the country. The following graph shows that during Congress rule, in the year 2008-09, the annual GDP rate had recorded the lowest at -1.8%, reaching an all-time high of 5.80 percent in the second quarter of 2009.  The rate in 2008-09 Q1 was the lowest ever, over the years 1996-2020. And again, during Congress rule, the GDP rate had, in 2011, plummeted to zero.

India’s GDP Forecast 2020- 2022

According to the Trading Economics, “GDP Annual Growth Rate in India is expected to be -10.00 percent by the end of this quarter, according to Trading Economics global macro models and analysts’ expectations. Looking forward, we estimate GDP Annual Growth Rate in India to stand at 15.00 in 12 months’ time. In the long-term, the India GDP Annual Growth Rate is projected to trend around 5.50 percent in 2021 and 4.00 percent in 2022, according to our econometric models.”

It is the Denominator, Stupid!

Did you notice from the above?

  1. “During 2008-09, the annual GDP growth rate had recorded the lowest at -1.8%, reaching an all-time high of 5.80 percent in the second quarter of 2009.”
  2. “GDP Annual Growth Rate in India is expected to be -10.00 percent by the end of this quarter, according to Trading Economics global macro models and analysts’ expectations. Looking forward, we estimate GDP Annual Growth Rate in India to stand at 15.00 in 12 months’ time. In the long-term, the India GDP Annual Growth Rate is projected to trend around 5.50 percent in 2021 and 4.00 percent in 2022.”

Now think for a moment:

  1. What was that magic wand in the hands of the Congress government that in 2009 Q2, they recorded 5.8% from -1.8 in the previous quarter?
  2. And what would be the magic wand in the hands of the present BJP government that Trading Economics global macro models and analysts’ expectations are that  estimate GDP Annual Growth Rate in India to stand at 15.00 in 12 months’ time?

In one word, it is  the denominator, stupid.

When the base or denominator is low, other things being equal, the growth is amplified. The growth of 10 from 100 is 10%. The same amount of change from 50 is 20%.

Lockdown Vs Slowdown

The current sound and fury are also misplaced for another reason.

2008-11 was a period of economic slowdown and again emanating from USA whose bank loan mortgage system was quite different from Indian banks’ mortgage system. In India, you needed 20% down payment to get mortgage loan.  In USA, you could get it even for 1- 3%. The securitization and re-securitization of bank loans made the havoc. India was different and that helped it to recover faster.

2020 is a period of psychological fear and lockdown. Here lives are involved. In 2008-09, there were asset prices and economy involved, not lives. Thus, even those two years (2008-09 and 2020-21) are not comparable. Indeed, in all fairness, comparing 2020 with any other year of the the time span of 2004- 2019 is comparing apples with oranges.

And the present government  had taken an ‘out of the ordinary’ decision to save lives before economy. Kudos to their value system. And it worked. Please sample below:

COVID 19 IncidencePCD   
 Population (Mn)Cases (Mn)Death (‘000)C/PD/CD/P
India13803.7650.27%17.57%0.047%
USA3316.11851.84%30.33%0.559%
Brazil2123.951231.86%31.14%0.580%

Source: COVID 19 cases, John Hopkins University Dashboard, Sept 2, 2020

Source: Population, Wordometers.info

The numbers above clearly show that India has done much better, compared with other high incidence countries, in terms of Cases to Population, Deaths to Cases and Deaths to Population.

Unprecedented  Actions: Clearing up Mess of 70 years

The present government has taken unprecedented actions like demonetization, GST and Removal of Article 370 from Jammu and Kashmir and others. Do you think when status quo of 70 years is shattered, it will not have adverse economic consequences? Those who could quietly evade taxes, now have to pay taxes. Those who had a State constitution granting a special status will be no more special. Do you think they will not resist, un-cooperate and whine? Every change is resisted. And many of those most resisting have been either in the ruling class or their benefactors for 70 years. Please don’t underestimate them. This was a monumental change. Demonetization did inconvenience and hurt poor physically, but pockets of those that ought to have been hurt were hurt. Will they not resist, un-cooperate and whine? It is only common sense that they will. In this situation, will economy suffer? Surprise should be if doesn’t, COVID-19 or No COVID-19! COVID 19 made it worse, of course.

Still, in terms of absolute GDP by expenditure in constant prices, this is how India is. Please see below.

India overcame 2008-9. India will overcome 2020 also.

Dr Sat Parashar, PhD is former Director, IIM Indore. He teaches at University of California, San Diego, and is a Financial Services Professional. He may be reached at [email protected]

Sat Parashar

Dr. Sat Parashar is an internationally acclaimed expert in Financial Management and Leadership. His passions are  spreading financial education and message of Bhagwad Gita/ KaramYoga.

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