Greenwoods for the GDP

A very distant Left Liberal chachu (and I can't stress enough the importance of the word 'very') happened to remark how India was going to the dogs with a 23.9% YoY GDP contraction in Jun 2020. With all the bravado he could bring in while unable to hide the glee of India doing badly, he proclaimed how the  Titanic was sinking while Bhaktagan were busy playing the music. Having had a long experience now interacting with Left Liberals, I have been convinced that the only way to reach their minds is through green chutney demos and nothing else has even a remote chance of working. I subtly shifted the discussion from one black swan event (COVID-19 of 2019-2020) to another, i.e. the 2008 Global Financial crisis. I then took the discussion to this Left Liberal chachu being laid off in early 2009 because of the crisis and went on to remark how my dear chachu faced a record -90% YoY fall in his income for CY2009 having been unemployed for most of the year. The poor chap kept trying to defend himself all along offering one explanation or the other sharing terms like 'Act of God', 'External factors', 'company limitations', 'trying times for financial sector' etc etc. I stuck to my guns for a long time and finally he uttered the words I was patiently waiting for nearly twenty minutes, "Chaitanya, I was not working for 10 months of the year! How do you expect growth! Infact, there is going to be a contraction!". "Exactly!", I smiled! "The country was not working for some months, Chachu", I said and walked away praying he wouldn't miss the Greenwoods for the GDP!

I have seen a lot of erroneous comparisons in the past few days ever since the FQ12021 GDP print was released. While it would have been easier to ignore, I admit, the student of economics in me found it very hard to let irrational and mathematically inconsistent arguments fly about endlessly. In this write-up, I'll try and present to the reader a simple unboxing of the events and then leave it up to them to conclude.

Now, like I told my left liberal chachu, the country was not working (by and large or at much reduced capacity, to be technically appropriate) for it to grow. As a generic principle, GDP is represented by the following formula:

GDP = C + I + G + Nx

C: Consumption by Private Individuals (you, me, my left liberal chachu etc)

I: Consumption by Businesses (L&T, Tata, Reliance, ICICIs etc)

G: Consumption by Government (Centre and State)

Nx: Net of Exports vs. Imports

Now, C and I account for the majority of GDP generated in the country (~88%) and given the strict lockdowns in place, both of them very severely impacted. The country hardly produced so the country hardly consumed sticking to only the essentials, more or less. It is worth noting that C and I fell by 27% and 47% respectively in FQ12021 and even when the Government spending increased by 16%, it was never going to be enough. 

Additionally, sample these events of the past few weeks:

1. Railway Freight loading in July 2020 increased as compared to July 2019

2. NHAI awarded the largest number of contracts in 3 years in the Apr-Aug 2020 time period.

3. GST collections are stabilizing with ~88% collections vs. last year as of Aug 2020

4. Auto manufacturer Maruti registered a 21.3% growth in August for wholesale dispatches crossing 1 lakh mark for the first time since Feb 2020

5. India's Forex reserves hit a record US$ 538bn with the Indian Rupee appreciating to post its biggest weekly gain in 20 months aided by the lower import of crude oil and with Foreign Institutional Investors bringing in money in anticipation that India will deliver better in post-COVID 19 times as compared to other economies. (Disclaimer: the appreciation of the INR is seen only as an indicator here; the scope of the post does not allow it to discuss the pros and cons of the event itself)

These are five of numerous indicators of what is happening around us and can we term India as a sinking economy? Venezuela or Pakistan are sinking economies and how do we compare with them is what we can keep for individual research!

When we now know what has actually happened and what is happening, it is worth asking ourselves whether this mean everything is hunky-dory? Of course it isn't as we are in the middle of a pandemic with the economy yet opened up completely. Our fiscal deficit mark has breached target within first four months and inflation is still above 6%. The external borrowing too is rising but all these indicators are unavoidable at the moment. What we can look at is revival! In late March 2020 just as the lockdown was announced, I remember arguing with a few doctor friends of mine that lockdown can only be a temporary time-buying solution and the governments will have to act fast in this time as it will be very limited window that they have before they'll be forced to reopen the economy. I personally feel that the decision then was the right one, in spite the economics student in me flagging concerns. The governments did do a fairly good job with ramping up of PPE production, massive upscaling in testing numbers, mass sanitization drives, protocol definitions, Aarogya Setu networking, contact tracing and more. The Unlock process started from 1st Jul 2020 which in restrospect, can be termed around a month late but I will not beat governments with brickbats for an unprecedented circumstance like this. To various extents, most of them seemed to be trying their best. However, we can see that with the possible exception of Karnataka, most states are extrapolating this lockdown tool too far thereby hindering economic recovery. What we can hope for is that states are now pushed to operationalize businesses to pre-COVID times at a faster pace rather than leaning on the centre to resolve the entire situation. India's economy is made up of its states and union territories! Due precautions are must but revival is priority #1 now for jaan and jahaan to balance. Unlike the 2008 financial crisis, the 2020 COVID-19 crisis is not a financial one. What I mean by that is what was closed has the potential to reopen though many sectors like hospitality, tourism, aviation etc will find the going tougher, no doubt. Nevertheless, the pent up demand built over a few months and cash savings of WFH professionals will drive near-term demand for sure as is being evidenced by Amazon's expansion of its fulfillment centres in Jul 2020. The generic point being that once India starts to work again, a recovery is a forgone conclusion. The only question is regarding the timeline and till that time, I pray our cultural teaching to be prudent in spending will have built buffer savings to tide us through these difficult times.

At the cost of a 23.9% economic deceleration, what did the lockdown eventually achieve? For that we have an example ready at our disposal - United States which witnessed fairly less locked-down economy in terms of region (Democratic ruled states, more or less) as well as duration. Check out the quick comparison below represented in India vs USA format sourced from Worldometer as of 2nd Sep 2020, 7:10 pm IST):

Infected Cases: 3.8mn vs. 6.3mn

Recovery Rate: ~77% vs. ~56%

Deaths: 66.5k vs. 188.9k 

Deaths per Million: 48 vs. 570

The classic retort is 'testing' which India has recorded at 44mn tests and USA stands at 83mn. In a hypothetical scenario of India testing as much as the USA we add 39mn more tests to which we apply a 10% positive rate (i.e. the proportion of COVID-19 positive cases from the total number of tests conducted); it is to be noted by the reader that the current positive rate in India has stabilized at 8% in spite of a tenfold testing increase as of 18th Aug 2020 and yet, I am applying a higher rate of 10% as speculative allowance to the testing argument. This calculation takes the hypothetical infected number to 7.7mn. If we scale the deaths too in the same proportion we get 134.75k deaths, still much lower than 188.9k in absolute terms and a major achievement in context of India having much higher population densities and weaker medical infrastructure vis-a-vis USA. I contend wholeheartedly that this is speculative without a doubt but some assumptions and speculations are needed when completely baseless arguments are made with a single-minded determination by the critique to undermine one's own nation. With those hell-bent to keep seeing the glass half-empty, I can claim with complete confidence that in the scenario where PM Modi had not taken a delicate call on locking down, India would have had much worse death statistics as compared to USA, again, because of higher population densities and weaker medical infrastructure. Then the same left liberals would have gone to town over the deaths instead of the GDP fall. Thus, I would like to look at alternative history - had India prioritized continued growth over human lives and not locked down the economy in March 2020 in a bid to avoid the fall of 23.9% YoY in GDP. Would that have been avoided? Apparently not as no country has stayed insulated from GDP contraction with each of the G7 economies contracting with even a lesser locked down one like the USA registering an annualized fall of 31.7% (US' Bureau of Economics Analysis had predicted 32.9%) and actual annual number published when annualized works out to ~32%. The fact that US number being worse off notwithstanding, even in an alternative scenario, an avg. contraction of min. 15% seemed unavoidable. India somewhere chose the middle route, attempting to balance economy and lives which I find the prudent approach to be taken - it speaks volumes about a culture that attempts to balance the material (money) with the transcending (life experience).

Finally, after having talked about economics, let me end with a dash of politics because that is the entire motivation behind the brouhaha behind the rip-off over the 23.9% GDP fall. 'Experts' like Dhruv Rathee, Akash Banerjee, Kunal Kamra will be propped up to deliver meticulous half baked data points in an appealing English presentation while even foreign experts & loyalists like Raghuram Rajan might be pressed into service later on. These influential people will influence a notable chunk on social media platforms; and I call them influential not because they influence me but because I have seen them influence educated minds who'd rather believe them than research & verify their comments. We will see a spurt of social media posts and trends that will cause a flutter in our hearts given our Bhaktagan status. What I wish to point out here is that elections are not won on social media. Social media was a new tool that gave Modi-led BJP the first mover's advantage in 2014 which was quickly, not only covered, but regained by the ecosystem within a few years. Like a classic Vedantic yogi, Modi already was aware of social media being a vehicle to journey towards the destination and not the destination itself. He was already aware that social media will only contrast the mainstream media exposing the deceit; once exposed, Modi was aware that only work will establish connect which when established will turn media management irrelevant! Today, Modi-led BJP has long gotten off the social media vehicle, in relative sense, and has directly established pan-India village-district-state-centre connect while opponents have stayed trapped in the vehicle of social media believing it to be the masterkey to winning elections - it never was! There is plentiful evidence to support this assertion of mine if we stop to compare the voteshares of BJP even during state losses. The BJP retained its vote shares in practically all states and in fact won back states like Karnataka and MP. Rajasthan switched polar from state to centre within a few months showing remarkable electoral clarity of thought. At a national scale, Modi's personal appeal even at the height of COVID is intact with ~90% approval ratings. Even the layman now understands the basic dynamics at play and he is not at all bothered about a 23.9% GDP fall when he knows what has actually happened. Thus the educated urban elite or middle class might be taken in for a ride with veiled numbers and incomplete data sets because he/she believes he understands them but the smart rural voter understands the honest loyal transaction not bothering about the numbers, that's trust. To them has Modi reached as if he sits in their homes. To them has Modi taken his reforms without fail! Examples: establishment of rail connectivity in Naxal-hit Antagarh or Changlang in Arunachal, 157kms away from the nearest motorable road, getting 2G connectivity or Shopian villages getting electricity connections after 70 years or the BRO activity in Ladakh that has enabled better LaC surveillance and defense.

The left liberals neither have economic backing to their arguments nor political backing so how do they plan to challenge the flow of thoughts? With social media screeching and large scale rioting like in Delhi or Bangalore? Will that deliver them the results? Are they happy to win vulgar battles on social media or closeted highly localized riots while leaving their flanks open in the field waiting for a broadside from the pracharaks, swayamsevaks and karyakartas to exploit?

There is a lot to think about for us all! There is much more to act upon for sure!

Stay Smart, Stay Safe!

Keep Fighting!

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Jai Hind!