Everyone expects India's economy to contract. Everyone.

S&P Global Ratings on Thursday said the Indian economy will shrink by 5 per cent in the current fiscal as it joined a chorus of international agencies that are forecasting a contraction in growth rate due to coronavirus lockdown halting economic activity.

Stating that COVID-19 has not yet been contained in India, the rating agency in a statement said the government stimulus package is low relative to countries with similar economic impacts from the pandemic.

"The COVID-19 outbreak in India and two months of lockdown -- longer in some areas -- have led to a sudden stop in the economy. That means growth will contract sharply this fiscal year (April 2020 to March 2021)," it said. "Economic activity will face ongoing disruption over the next year as the country transitions to a post-COVID-19 world."

Forecasting a 5 per cent contraction in 2020-21 (versus 1.8 per cent growth forecast it made in April), S&P said growth is expected to pick up to 8.5 per cent in the following fiscal (up from the previous forecast of 7.5 per cent). The GDP is projected to expand by 6.5 per cent in FY23 and 6.6 per cent FY24.

Earlier this week, Fitch Ratings and Crisil, too, projected a 5 per cent contraction for the Indian economy.

While Fitch Ratings had stated that India has had a very stringent lockdown policy that has lasted a lot longer than initially expected and incoming economic activity data have been spectacularly weak, Crisil had said the country's fourth recession since Independence, first since liberalisation, and perhaps the worst to date, is here.

On Thursday, Fitch Solutions (which is separate from Fitch Ratings) forecast real GDP to contract by 4.5 per cent in FY2020-21 saying "high unemployment will depress consumer spending, while widespread economic uncertainties will curb investment in the private sector.

Moody's Investors Service on May 8, forecast a 'zero' growth rate for India in FY21.

In the past 69 years, India has seen a recession only thrice – as per available data – in fiscal year 1958, 1966 and 1980. A monsoon shock that hit agriculture, then a sizeable part of the economy, was the reason on all three occasions.

This time around agriculture is not the reason but a dent to industrial and economic activity caused by lockdown, which was first imposed on March 25. The lockdown has been extended thrice till May 31 with some easing of restrictions.

S&P Global Ratings expects varying degrees of containment measures and economic resumption across India during this transition.

"COVID-19 has not yet been contained in India. New cases have been averaging more than 6,000 a day over the past week as authorities begin easing stringent lockdown restrictions gradually to prevent economic costs from blowing out further. We currently assume that the outbreak peaks by the third quarter," it said.

India has grouped geographical zones into red, orange, or green categories based on the number of cases. Areas currently classified as red zones are also economically significant, and the authorities could extend mobility restrictions.

"We believe economic activity in these places will take longer to normalize. This will have knock-on impacts on countrywide supply chains, which will slow the overall recovery," it said.

The rating agency said high-frequency data for April showed major economic costs for India - purchasing managers index (PMI) for the services sector was 5.4, on a scale where anything below 50 indicates a contraction of business activity from the previous month for the sector.

Also, service sectors, which account for high shares of employment, have been severely affected, thus leading to large-scale job losses across the country. Workers have been geographically displaced as migrant workers travelled back home before the lockdown, and this will take time to unwind as lockdown measures are lifted.

"We expect that employment will remain depressed over the transition period," it said.

S&P said India has limited room to maneuver on policy support. The Reserve Bank of India has cut policy rates by 115 basis points but banks have been unwilling to extend credit. Small and mid-size enterprises continue to face restricted access to credit markets despite some policy measures aimed at easing financing for the sector.

"The government's stimulus package, with a headline amount of 10 per cent of GDP, has about 1.2 per cent of direct stimulus measures, which is low relative to countries with similar economic impacts from the pandemic. The remaining 8.8 per cent of the package includes liquidity support measures and credit guarantees that will not directly support growth," it said.

The rating agency said the big hit to growth will mean a large, permanent economic loss and a deterioration in balance sheets throughout the economy.

"The risks around the path of recovery will depend on three key factors. First, the speed with which the COVID-19 outbreak comes under control. Faster flattening of the curve -- in other words, reducing the number of new cases -- will potentially allow faster normalization of activity. Second, a labour market recovery will be key to getting the economy running again. Finally, the ability of all sectors of the economy to restore their balance sheets following the adverse shock will be important. The longer the duration of the shock, the longer recovery," it added.

Acknowledging a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak, it said some government authorities estimate the pandemic will peak around mid-year, and that has been used as an assumption in assessing the economic and credit implications.

The Kerala model

 When, towards the end of the first decade of the present century, Narendra Modi began speaking frequently about something he called the 'Gujarat Model', it was the second time a state of the Indian Union had that grand, self-promoting, suffix added to its name. The first was Kerala. The origins of the term 'Kerala Model' go back to a study done in the 1970s by economists associated with the Centre for Development Studies in Thiruvananthapuram. This showed that when it came to indices of population (as in declining birth rates), education (as in remarkably high literacy for women) and health (as in lower infant mortality and higher life expectancy), this small state in a desperately poor country had done as well - and sometimes better - than parts of Europe and North America.

Boosted to begin with by economists and demographers, Kerala soon came in for praise from sociologists and political scientists. The former argued that caste and class distinctions had radically diminished in Kerala over the course of the 20th century; the latter showed that, when it came to implementing the provisions of the 73rd and 74th Amendments to the Constitution, Kerala was ahead of other states. More power had been devolved to municipalities and panchayats than elsewhere in India.

Success, as John F. Kennedy famously remarked, has many fathers (while failure is an orphan). When these achievements of the state of Kerala became widely known, many groups rushed to claim their share of the credit. The communists, who had been in power for long stretches, said it was their economic radicalism that did it. Followers of Sri Narayana Guru (1855-1928) said it was the egalitarianism promoted by that great social reformer which led to much of what followed. Those still loyal to the royal houses of Travancore and Cochin observed that when it came to education, and especially girls' education, their Rulers were more progressive than Maharajas and Nawabs elsewhere. The Christian community of Kerala also chipped in, noting that some of the best schools, colleges, and hospitals were run by the Church. It was left to that fine Australian historian of Kerala and India, Robin Jeffrey, to critically analyse all these claims, and demonstrate in what order and what magnitude they contributed. His book Politics, Women and Wellbeing remains the definitive work on the subject.

Such were the elements of the 'Kerala Model'. What did the 'Gujarat Model' that Narendra Modi began speaking of, c. 2007, comprise? Mr Modi did not himself ever define it very precisely. But there is little doubt that the coinage itself was inspired and provoked by what had preceded it. The Gujarat Model would, Mr Modi was suggesting, be different from, and better than, the Kerala Model. Among the noticeable weaknesses of the latter was that it did not really encourage private enterprise. Marxist ideology and trade union politics both inhibited this. On the other hand, the Vibrant Gujarat Summits organized once every two years when Mr Modi was Chief Minister were intended precisely to attract private investment.

This openness to private capital was, for Mr Modi's supporters, undoubtedly the most attractive feature of what he was marketing as the 'Gujarat Model'. It was this that brought to him the support of big business, and of small business as well, when he launched his campaign for Prime Minister. Young professionals, disgusted by the cronyism and corruption of the UPA regime, flocked to his support, seeing him as a modernizing Messiah who would make India an economic powerhouse. 

With the support of these groups, and many others, Narendra Modi was elected Prime Minister in May 2014.

There were other aspects of the Gujarat Model that Narendra Modi did not speak about, but which those who knew the state rather better than the Titans of Indian industry were perfectly aware of. These included the relegation of minorities (and particularly Muslims) to second-class status; the centralization of power in the Chief Minister and the creation of a cult of personality around him; attacks on the independence and autonomy of universities; curbs on the freedom of the press; and, not least, a vengeful attitude towards critics and political rivals.

These darker sides of the Gujarat Model were all played down in Mr Modi's Prime Ministerial campaign. But in the six years since he has been in power at the Centre, they have become starkly visible. The communalization of politics and of popular discourse, the capturing of public institutions, the intimidation of the press, the use of the police and investigating agencies to harass opponents, and, perhaps above all, the deification of the Great Leader by the party, the Cabinet, the Government, and the Godi Media - these have characterized the Prime Ministerial tenure of Narendra Modi. Meanwhile, the most widely advertised positive feature of the Gujarat Model before 2014 has proved to be a dud. Far from being a free-market reformer, Narendra Modi has demonstrated that he is an absolute statist in economic matters. As an investment banker who once enthusiastically supported him recently told me in disgust: "Narendra Modi is our most left-wing Prime Minister ever - he is even more left-wing than Jawaharlal Nehru".

Which brings me back to the Kerala Model, which the Gujarat Model sought to replace or supplant. Talked about a great deal in the 1980s and 1990s, in recent years, the term was not much heard in policy discourse any more. It had fallen into disuse, presumably consigned to the dustbin of history. The onset of COVID-19 has now thankfully rescued it, and indeed brought it back to centre-stage. For in how it has confronted, tackled, and tamed the COVID crisis, Kerala has once again showed itself to be a model for India - and perhaps the world.

There has been some excellent reporting on how Kerala flattened the curve. It seems clear that there is a deeper historical legacy behind the success of this state. Because the people of Kerala are better educated, they have followed the practices in their daily life least likely to allow community transmission. Because they have such excellent health care, if people do test positive, they can be treated promptly and adequately. Because caste and gender distinctions are less extreme than elsewhere in India, access to health care and medical information is less skewed. Because decentralization of power is embedded in systems of governance, panchayat heads do not have to wait for a signal from a Big Boss before deciding to act. There are two other features of Kerala's political culture that have helped them in the present context; its top leaders are generally more grounded and less imperious than elsewhere, and bipartisanship comes more easily to the state's politicians.

The state of Kerala is by no means perfect. While there have been no serious communal riots for many decades, in everyday life there is still some amount of reserve in relations between Hindus, Christians and Muslims. Casteism and patriarchy have been weakened, but by no means eliminated. The intelligentsia still remain unreasonably suspicious of private enterprise, which will hurt the state greatly in the post-COVID era, after remittances from the Gulf have dried up.

For all their flaws, the state and people of Kerala have many things to teach us, who live in the rest of India. We forgot about their virtues in the past decade, but now these virtues are once more being discussed, to both inspire and chastise us. The success of the state in the past and in the present have rested on science, transparency, decentralization, and social equality. These are, as it were, the four pillars of the Kerala Model. On the other hand, the four pillars of the Gujarat Model are superstition, secrecy, centralization, and communal bigotry. Give us the first over the second, any day. 

 

https://www.ndtv.com/opinion/give-us-kerala-model-over-gujarat-model-any-day-by-ramachandra-guha-2216254

Big year.

This will one of those big years for me. Correction - biggest year. Life changing. Things are never going to be the same again. I will be looking back to these times forever from this point. Am I ready for it ?

Oh yes. Ready as I will every be.

But the truth is, no one is really ready for these things. You just go with it.

And learn.

A world of changes.

It has been quiet, lately When I go out now, there are fewer people on the road, in the trams, and everywhere else. Trains are no longer full, and run on time. For the first time in maybe years, all trains are been cleaned. It is now easier to drive on the roads, fewer cars outside, no traffic jams. No crowds, no noisy neighbours, and when you sneeze, nobody turns around and says “bless you!”

If it was not for the pandemic, and the fact that so many people have already died, this would have been a much better world to yearn for. It is ironical that it took a disease to tell us that there are indeed more powerful forces on this planet than brute human strength.

March, 2020. This month is going to live on in infamy. It took 3 months for the whole world to wake up to the threat; a new, invisible enemy that our planet has to fight. In these past days, two things have become ever clear. One: we are not prepared. Not even the most developed and advanced countries on earth are prepared for a pandemic of this proportion. All the while nations were busy fighting over each other, stocking up arms and preparing for future wars. No one thought of other ways their nations could be defeated: sheer human lethargy. Things have come to such an extent that some nations have issued shoot at sight orders against their own citizens, if they ever step out of their homes! Others have just resorted to fines at the moment, while some have started using brute force, with no regards to human rights and constitutional rights of its citizens.

Two: The borders between the rich and poor have never been as clear and sharp than what is exposed right now. Its easy for the govt of any country to declare mandatory social distancing. But only those who have a home can stay home. Social distancing is a privilege, enjoyed by the rich, or at least financially prepared. For the poor, who live from day to day, and with no long term social security or planning, it is simply not an option. While those with disposal incomes were hoarding supermarket produce, ordering takeout delivery ,staying home and watching streamed videos, those who couldn’t do it were struggling to pay their and rent and buy the day’s essentials. Many lost their jobs, due to companies running into overnight losses, and many others have been kicked out of their homes, due to inability to pay rent. Buried within the statistics of COVID deaths is an invisible count of people who died due to the shutdown, but not directly due to the virus.

In India, the nation’s stark difference between its rich and poor have exposed how unprepared the govt is at managing a pandemic. While cabinet ministers are at home playing board games, and PM is on tv shedding crocodile tears, a long line of poor, migrant workers is snaking across the nation, in an attempt to get home. Ignoring all calls to socially distance, millions of daily wage workers have come together to strike for the day’s meal, or just ask for the path to travel home. Due to public transportation being shutdown in most places, and borders between states now being closely monitored, these workers have resorted to walking hundreds of kilometres home through dangerous forests and treacherous  terrain, to slip under the eyes of authorities. Many have died in this exodus. The govt has tried to shift responsibilities to its well to do urban rich, asking them to pay their workers during the lockdown, blindly believing the non-existent trickle down economy will take of the lower levels. The numbers of COVID infected are meanwhile, growing exponentially.

This event is undoubtedly going to change the world. For the better, I sincerely hope. Now is the time to see the benefits of social welfare programs taking care of a nation’s needy. This is not the time to worry about a failing economy, but the failing healthcare system. Already some world leaders have been infected, showing the world that a pandemic like this does not differentiate between the rich and poor. Or between religion and borders. Lets learn from this, and be better prepared for next time.

PS: I am reminded of Ian Malcolm’s ramblings in Jurassic Park, when he says the world and nature will find a way to stop humans. This world was here billions of years before us, and will persist fo billions more without us. Incurable diseases is just one way of keeping escalating population in check.

World war C

This is war. Full on. No government might mention or accept it, but we are now at war. Against an enemy we can’t see or hear.  We are at war with the Coronavirus. And therefore, at each other.

You see, the only way the virus could have spread this far out into the world was my human-to-human contact. And governments world over have now started to advice social-distancing. Things have now come down to this, we now have to avoid each other ! Governments in Italy ,China, Spain have announced full lockdowns, restricting its people from even venturing out, whether they are infected or not. And other countries are following suit.

Australia, too panic-stricken to lead by example, is yet to call a nation-wide absolute lockdown. Worried more about its economy, which was already sliding before the pandemic, they only banned flights from China, and advised people to follow minimum protocols. Now with 290 confirmed cases and 3 deaths, there is a little more seriousness in the way their approach to the war. A few weeks back, the idiots down under lit up Australian national monuments in red and yellow, to show solidarity & remember the sacrifice of China; but it was more of a PR effort to retain the good relations with that country. It took the Aussies an additional week to announce the full ban against travellers from Italy, and the damage is now visible. The country had barely recovered from the disastrous bush fires, right into this pandemic. The fight for toilet paper is still on.

Things aren’t looking any better for India, who’s leaders took all their sweet time to draft and finalize a proper response. Kerala was the first Indian state to report an infection, but also the first to announce a fool-proof action plan to isolate and treat the patient. This was last month, showing exceptional knowledge & leadership in the matter. The rest of India at the time asked questions as to why is it always Kerala that is the epicenter of new, viral diseases, and religious bigots blamed the food habits and breakage of temple rituals for the initial spread. But now no-one is questioning the lack of leadership from the central government, now that there are 100 cases and 2 deaths.  Sanghis are resorting to drinking cow-urine and bathing in cow-dung to prevent an infection, becoming the laughing stock of the rest of the world.

And it is ironic that Italy and Iran , countries known to be too open and too closed to the outside world, are equally affected by COVID infections.

But no country was un-prepared for this pandemic than, wait for it….the US. The leader of the free world was caught with its pants down with s serious outbreak, when the nation was itself busy in the initial stages of its presidential election. The whitehouse, again more worried about the falling stock markets, continued to pelt lies and false propaganda, and struggled to lead a country which does not even have universal health care. The gaps in its preparedness and leadership is now as clear as night and day, with 45 deaths right in the state of Washington. If nothing else, this alone should be enough to wipe the country of its real infection, the virus sitting in the oval office, and hopefully, its citizens would vote for the democratic party, just to receive a generous medical insurance cover.

Scientists and leaders are shocked at the un-precented rapid spread of the viral pandemic, around the world, in just 3 months. At this moment, there are over 169,000 confirmed COVID cases, and 6,500 deaths. You could chart and sort the data however you want, but the fact remains that the world was too busy fighting oil wars and trade and tariff wars with each other, and no body had a plan or a prediction for a viral outbreak. Hollywood is good at making movies about viral epidemics, but for once, a horror movie is coming to life. In the initial days, virologists were trying to figure out the original source of this aberration, blaming bats, snakes and pangolins for being the host. But everyone has forgotten that branch of thought, the current host right now are human beings. The more we embrace and thank each other, the more we are passing on the virus.

This incident will change the world. Later generations, hopefully there are a few, will talk, discuss and study how grossly unprepared the world was. They will study how false news and hype caused more damage than the actual infection. And how leaders were focussed on economy and money, and were hesitant to focus on their greatest wealth and asset – human beings. Hopefully, we will emerge from this unscathed, with a fraction of the world population lost, but with lessons learnt from the mistakes we made.

This maybe the next big war we fight, as one. So please stay together in spirit, but ironically, remember to maintain your distance.