Is the Indian Economy in Recession because of Covid-19 Pandemic?

The Indian finance minister Ms. Nirmala Sitharaman while addressing the annual general meeting of the Indian Chamber of Commerce (ICC) said that,

While in early 2020 green shoots and revival signs of the economy were visible, it was upset with the pandemic setting in.

the government has taken several of measures to support the economy but no amount of intervention will be adequate to deal with the crisis triggered by the Covid-19 pandemic.

Ms. Sitharaman is dead wrong. Not only that, she is outright lying. Why? First, there were no green shoots and revival signs of the economy before the pandemic set in. Within a year time of the 2016 demonetization and then GST rollout in 2017 economy was on a continues decline as can be seen from figure 1 below (source). It never recovered from those double whammies of Modi government.

Second, the present decline of the Indian economy in an official technical recession is not because of pandemic but because of government’s haphazard totalitarian policy of imposing a nationwide lock down in March. No country around the world imposed such a nationwide lock down where they locked up their whole population for many months. That lock down halted the Indian economy. There are many countries around the world like Sweden, Taiwan, South Korea, Japan or even America etc., which successfully managed Covid-19 without imposing any nationwide lock down or other mandates like wearing mask or doing social distancing etc. One can go on arguing endlessly about the desirability of the lock down but there is no denying the fact that the economy is dead and buried because of that lock down and not because of pandemic per se. Pandemics are natural disasters and we choose our own actions about how to deal with them. Blaming a pandemic for the slowdown is like blaming nature for the slowdown! Nature is doing its work. We must do ours properly. And blaming pandemic for the recession also means Modi government has no solution of the on-going recession crisis which they themselves have created.  If we believe finance minister and think pandemic is responsible then what sort of solution we can offer? Government sure can’t stop nature from doing its work! Japan keeps on getting one natural disaster after another in the forms of earthquakes, tsunamis and typhoons etc., but after every devastation within days they rise up and make everything like what it was before the disaster. That’s the culture of Japanese people; their level of intelligence and values that make them recover so fast from any blow. And here in India government keeps on blaming others for its own faults. This also shows the attitude of the government of never ready to learn any lessons from its failures. They will continue to pile up one mistake after another thinking, because people are voting for us so we are definitely doing it right! But the parameter of winning elections isn’t a right parameter to run an economy and society.

Third, as I have written elsewhere government’s very response of spending money in one stimulus after another, coupled with thoughtless policies of demonetization, GST and Covid-19 lock down etc., has contributed in the deepening of recession. Those measures to support the economy and government interventions are what is not allowing the economy to recover. Government’s supposed cure itself is the cause of the recession. And so only in this twisted way Sitharaman is correct in saying, no amount of intervention will be adequate to deal with the crisis … . She is correct by being incorrect. She is correct in a sense that the very intervention of the government is what is killing the economy so it sure will not be adequate (sic) to bring the economy out of recession! In fact, the more they will intervene, the more economy will deteriorate. Economy will only improve when she and her government will stop intervening in the economy.

Not stopping at this, Ms. Sitharaman went on to blame 1990s reform of Narsimha Rao and Manmohan Singh for today’s crisis. She said,

While the reforms of 1991 were a big step, but that had a balance of payments crisis.

“Had the government of that time had done something more, the economy now would have been in a better shape.”

This is that same loser attitude of blaming others all the time for their own failures. The way it is going, I am sure one day she will blame Chandragupta Maurya for not doing enough 2300 years ago else her government would’ve made India a first world super power by now!

All in all, finance minister Nirmala Sitharaman is dead wrong about everything she said and believes. This government should man up and own its policies and their consequences. I know that is not going to happen and so we must stay ready to face more government made disasters in future.