Can PM Modi save the economy after the GDP collapse?Top Stories

September 02, 2020 19:53
Can PM Modi save the economy after the GDP collapse?

(Image source from:

India’s economy has shrunk by 23 percent in the first quarter of 2020 and the Modi government’s loan melas cannot fill up the huge void.

At a time when yearly pay hikes and promotions were in a rage, the sudden outbreak of coronavirus in the country has left every stone turned in the country.

This year COVID-19 forced the companies to lockdown its offices. People have started working from home and instead of raises, the salary is being compromised.

The size of the economy that we know as GDP is down by nearly a quarter of what it was in the first quarter of the previous year.

How collapse in consumption and investment made the GDP numbers even worse?

Normally, most of our national income is made up of private consumption and investment. In Q1 last year, these two items accounted for about Rs 43 lakh crore in 2019 prices.

This year, the number has dropped by a whopping Rs.14 lakh crore in today’s prices. That is nearly half of the central budget for all of 2020-21.

Increased government expenditure could do very less to make up for this decline. Ironically, the collapse in the consumption and investment ended up making the GDP numbers look better than they are.

Agriculture Has Grown But the farmers haven’t gained a lot

Lockdown was supposed to affect almost all sectors of the country. As expected, the worst affected sectors were construction, hotel, trade and transport where the value-added was dropped to nearly half of what it was in 2019.

Manufacturing declined by nearly 40 percent while mining and quarrying dropped by almost a quarter. Official GDP data clubs together real estate, financial services, and other professional services.

This category declined by just over 5 percent. There has been an approximate 10 percent drop in value-added in the government sector.

This is probably because many government offices were shut while the subsidies shot up.

The only sector which has grown is agriculture. This was expected as the lockdown relaxations allowed the farmers to complete the Rabi harvest. But even her the study suggested that that average farmer has not gained at all.

The government data tells us that the retail prices faced by the farmworkers went up by about 8.1 percent in the first three months of this fiscal.

The average farmer has spent Rs. 240 more than what he earned this year. His real income declined though his nominal income improved.

There’s one more reason to this which is the rise in the number of farmers during the lockdown period compared to previous years.

There were nearly 110 million farmers who were employed in the last year which has grown to 122 million this year.

What PM Modi needs to do to revive the economy?

One thing is clear, the government has to spend much more to revive the investment both in the public and private sectors.

It has to cut the taxes to revive private consumption. It has to stop its deflationary economic policies to make sure the producers have a price incentive to increase the input.

This collapse in our economy is a chance to reshape India towards a manufacturing-driven country that caters to the mass market instead of just the top 10% of the consumers.

There is Rs. 14 crore drop in the private consumption and investment in the first three months alone.

Even if that reduces, the net drop over the next three quarters will not be less than Rs. 20 to 25 lakh crores.

PM Modi has a huge opportunity to nurse India’s economy back to health and at the same time make it more physically fit.

By Gayatri Yellayi

If you enjoyed this Post, Sign up for Newsletter

(And get daily dose of political, entertainment news straight to your inbox)

Rate This Article
(0 votes)
Tagged Under :
India  GDP  economy  PM Modi