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Rebooting Economy XXVI: Derailment of economy is not 'Act of God', it is 'Art of Misdirection'

Part II of this two-part article continues to relook at misadventures that derailed the Indian economy, threatening dreams of millions of "aspirational" Indians. Instead of a serious and meaningful debate, India continues to grapple with constant and systemic "misdirection" in multiple sense of the word

Rebooting Economy XXVI: Derailment of economy is not 'Act of God', it is 'Art of Misdirection'

When governments indulge in misdirection, governance is more likely to be forgotten and crisis more likely to worsen

The economic misadventures that began with the introduction of 2011-12 GDP series in January 2015, using deeply flawed database (MCA-21) to raise GDP growth, and continued with the demonetisation in November 2016 and GST in July 2017 - both without thinking, planning or preparing - continued right into the pandemic-induced lockdown and subsequent unlocking of the economy, worsening the health and economic crises in the process.

Here are some of these economic misadventures.

GDP back-series: Niti Aayog's data fudging to lower UPA-era growth  

When the new GDP series (2011-12 base) was released in January 2015, the back-series data was not released, which is a normal practice and critical for comparative analysis.  

The back-series data was released three years and 10 months later on November 28, 2018. It stopped at 2004-05 because the data and methodology it used could not be worked back to 1950-51, the usual practice, thus robbing its long-term value and would be junked from a long-term perspective.  

Also Read: Rebooting Economy XXV: How a series of economic misadventures derailed India's growth story

This back-series cut down the growth rate of the UPA era - reproduced below. The dotted line shows the UPA era growth rate in the 2004-05 series.

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By this time (November 2018), it had come to public notice that Niti Aayog had twice rejected the earlier back-series calculations of government-run agencies for showing a higher UPA era growth than that of the NDA-II.  

Niti Aayog did so, first under vice chairman Arvind Panagariya and then Rajeev Kumar, even though it has neither domain expertise nor locus standi. (For more read "GDP base year row: What's the problem with re-basing India's growth calculations ")

This blatant data fudging continues through a series of retrospective revisions in GDP, often lowering the previous year or quarter data to artificially raise the current growth rate. Thus, the GDP data no longer reflects the actual ground realities.

The last retrospective revision was on February 28, 2020 when the growth rate of Q1 of FY20 (constant prices) was pushed up to 5.6% - from 5% declared on November 29, 2019.  

Simultaneously, the Q2 of FY20 growth was pushed up from 4.5% to 5.1%.

Such data manipulation has reduced India's economic statistics into a vanity project.  

For example, the Periodic Labour Force Survey (PLFS) of 2017-18 was first junked when its content leaked out in January 2019 showing a 45-year-high unemployment rate and then released in May 2019 after NDA-II had secured a second term in office.

Again, the Household Consumer Expenditure Survey of 2017-18 was junked for showing that 'real' household consumption expenditure had fallen for the first time in 40 years - from Rs 1,501 in 2011-12 to Rs 1,446 in 2017-18, in a leaked report - and remains so now.

What this survey conveyed is that the economic health of Indian households is going down. This was confirmed by a Niti Aayog report of December 2019 which showed poverty, hunger and income inequality had grown in 22 to 25 states and union territories, of the 28 it mapped in 2019 from its baseline index of 2018. (For more read "Budget 2020: Niti Aayog shocker; Poverty, hunger and income inequality up in 22 to 25 States and UTs ")

COVID-19 strikes: Unthinking locking & unthinking unlocking  

The graph below maps the exponential growth in COVID-19 cases in India and the total case counts on the day of the lockdown on March 25 and the subsequent unlocking phases.

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Do India's decisions to lockdown and unlocking make sense?

India locked down when the total caseload stood at 657 and started unlocking when the number had risen to 198,370. The Unlock 4.0 started from September 1 when the total cases were 3.8 million.  

On July 27, 2020 Prime Minister Narendra Modi told the nation that India was better placed than any other country in fighting the pandemic because it took right decisions at right time. A fortnight later, Nobel laureate Abhijit Banerjee countered, saying that India erred in entering and exiting the lockdown hastily.

On September 3, 2020, India's total cases stood at 3.85 million, new cases at 82,860 and death count at 67,486. The total cases are likely to be far more because India's test per million people is among the lowest at 2,788 (on September 3), while the US and Brazil have a testing rate of 18,986 and 18,802, respectively.

India is the only known country in the world that does not disclose its total virus count.

It reveals the daily count and replaces it every single day to make it impossible to know the total, even when the world knows it is contributing the maximum to new cases and death counts in recent weeks.

After the Q1 of FY21 data was released on August 31, showing a steep fall to minus 23.9%, and it turned out to be worse than all major economies in the world; the Chief Economic Advisor Subramanian Krishnamurthy put the blame on (i) exogenous shock (pandemic) and (ii) more intense lockdown than other major economies.

Also Read: Rebooting Economy XXII: Why is India reluctant to provide unemployment allowance?

Both the latest GDP numbers and the COVID-19 numbers demonstrate that Krishnamurthy couldn't be farther from the truth.  

Krishnamurthy also kept repeating that India would witness a V-shape (quick) recovery. Just six days earlier, the RBI had released its 2019-20 annual report warning of darker days ahead with facts and figures.

It said the upticks seen in May and June (part of the Q1 of FY21) in some economic activities "appear to have lost strength in July and August...suggesting that contraction in economic activity will likely prolong into Q2".  

The actual drop in Q1 of FY21 is likely to be far worse since the quarterly GDP estimates are based on the organised sector indicators (except for agriculture), largely ignoring the unorganised sector that contributes 47% to the GDP (as assumed while finalising the 2011-12 GDP series) and took a bigger hit - for the third time since the demonetisation and GST fiascos.  

Response to COVID-19: No plan, no vision, no effort  

The Centre's response to the pandemic reflects incompetence in managing it.  

The sudden lockdown from the midnight of March 24-25 caused millions of job losses overnight, especially for causal and self-employed workers, just as did the demonetisation in 2016. It also immediately choked airports and railway stations with people desperate to reach their destinations, spreading the virus rather than containing it.

Implementing the lockdown was for the state governments, but they were not consulted. It was the same old routine of declaring a lockdown at 8 pm enforceable four hours later at 12 pm (midnight) with no planning, no preparation and no warning - just like the demonetisation. States were pounded by a flood of instructions and notifications covering every aspect of managing their affairs.

And then came a shocking leak in May 2020.

It revealed what was known from anecdotal accounts but not in magnitude: More than 1.5 million international incoming passengers had slipped through the central government-controlled airports between January 18 and March 23 with little testing, quarantine or tracking.

Also Read: Rebooting Economy XXI: Will NEP 2020 bring quality and equity in education?

The Centre's letter to Chief Secretaries of states had passed on the responsibilities to track and manage them. The letter was dated March 26, 2020.  

The Centre had failed in its job it claimed to be doing with due diligence.

Not just that. By forcing migrant workers to stay put for months in urban centres, which are more prone to getting infected by the COVID-19 virus from international incoming passengers, and then letting them go en masse to the hinterland, the Centre helped spread the virus far and wide.  

That is not all.

India isn't tracking job loss caused by the lockdown.

Millions of jobs and livelihood sources have disappeared. Private estimates paint a scary picture, but the Centre is unmoved. It has no estimate of job loss because it is not tracking it. The consequences of its unthinking, unplanned and unprepared responses to the pandemic are borne by millions of hapless Indians.

India has no plans to protect its workers either.

All major countries, for example the 36 members of the OECD club have saved 50 million jobs through "job retention (JR) schemes during the pandemic.  

An OECD report of August 3, 2020 said: "By May 2020, JR schemes supported about 50 million jobs across the OECD, about ten times as many as during the global financial crisis of 2008-09. By reducing labour costs, JR schemes have prevented a surge in unemployment, while they have mitigated financial hardship and buttressed aggregate demand by supporting the incomes of workers on reduced working time." (For more rad "Rebooting Economy XXIII: What stops India from taking care of its crisis-hit workers? ")

India does not have such a scheme, is not even planning and can't claim to have saved one single job.

India is unmoved by another threat: millions are likely to be pushed back into poverty. Multi-lateral agencies are regularly warning about it but India has made no effort to find out, much less remedy it.

A July 2020 study by King's College London and Australian National University estimated that the COVID-19 pandemic is likely to impoverish 114.9 to 525.8 million Indians. (For more, read "Rebooting Economy VIII: COVID-19 pandemic could push millions of Indians into poverty and hunger ")

As for the Rs 21 lakh crore relief package announced by the government, there is very little fiscal spending in it and hence unlikely to stimulate recovery or growth. It relies overwhelmingly on supply side management, mainly by extending credit facility (liquidity supply) while month after month the finance ministry data shows that demand has collapsed, leading to a fall in capacity utilisation and industrial production, much before the pandemic hit.

Also Read: Rebooting Economy XX: Do developed economies depend on private schooling and funding for quality education?

The RBI data too shows there are few takers of the liquidity. Its latest report of August 25 admits "appetite for investment is anaemic" and yet the response remains firmly rooted on the supply side. The excess liquidity is ending up with the RBI's own reverse repo account where it has no business to do. (For more read "Coronavirus Lockdown XIX: Where is excess liquidity generated by RBI going? ")  

Hounding Muslims, banging 'thaali' and other diversions  

Blaming Nehru (first prime minister who died in 1964), the Mughals (who ruled before the British) or the Congress for all that is wrong with the Indian economy is routine.

When the pandemic hit, a fresh round of attacks began on Muslims.  

This time the target was Tablighi Jamaat, an Islamic missionary whose members had gathered in Delhi, as they do in March every year, with full government knowledge.  

Yet they were hounded for spreading the virus deliberately to harm India. Overnight, police fanned out the entire country, numbering them, filing FIRs, arresting, putting them in jail and filing charge sheets in double quick time. Many foreign members were blacklisted and deported.  

By the August-end, at least three high courts had dismissed their criminal prosecution and blasted police and their political bosses.  

The Mumbai High Court said that the (Maharashtra) police acted "after getting directions from central government", with "no record...to make out prima facie case". It said the Centre's own records submitted to the court showed such activity (annual gathering in Delhi) "was going on for more than 50 years".  

It called out the Centre for deliberate and malicious targeting of Muslims: "The record of this matter and the submissions made show that action of central Government was taken mainly against Muslim persons who had come to Markaz Delhi for Tablighi Jamaat. Similar action was not taken against other foreigners belonging to other religions."

Also Read: Rebooting Economy XIX: How India relies on low-paid ad hoc teachers for schooling children

It concluded: "Thus, there is smell of malice to the action taken against these foreigners and Muslims for their alleged activities."

The Madras High Court said prosecuting Muslims was "unreasonable, unjust and unfair". The Karnataka High Court quashed FIRs against the Jamaat's foreign members, but not for the Indian members.

Meanwhile, the Indian middle class were engaged in various entertaining activities on their balconies.

On quite a few evenings (and days) the Indian middle class gathered on their balconies to clap hands, bang 'thaalis' (utensils) or lit candles after switching off electric bulbs to show respect for the medicos fighting the pandemic even as thousands of migrant workers walked past in sheer desperation, covering hundreds of miles to home, having lost jobs, shelters and hope for survival.  

India's Chief of Defence Staff General Bipin Rawat, a four-star general, also jumped in.

He told Indians how he is arranging to shower rose petals on the medicos from the sky to honour them. Naval ships were rushed to coasts; helicopters were sent flying all over the country. Medicos were made to line up in the sun for hours to get showered with rose petals.

Also Read: Rebooting Economy XVIII: Does quality education really matter to India?

During those days if the medicos complained about lack of safety gear for them, they were routinely abused, some soundly thrashed and all were trolled online for their lack of patriotism by many who would have participated in the balcony events.

It was later revealed that while General Rawat and his men were planning and executive aerial rose petal shows in May 2020, the Chinese army was collecting at the Line of Actual Control (LAC) in Ladakh, crossing over to grab a fair bit of land on India's side at several places and where they are believed to remain.  

General Rawat continues to serve India as its Chief of the Defence Staff.  

The art of "misdirection"

"Misdirection" belongs to the world of performing magicians.  

It is a technique magicians use to entertain spectators, though it would perfectly fit into some of the activities in India during the pandemic and earlier.  

Long ago, Nevil Maskelyne and David Devant explained what it involves in their 1911 classic book "Our Magic: The art in magic, the theory of magic and the practice of magic" and is worth reading. 

Also Read: Rebooting Economy XVII: Why governments promote shadow banking

Here it goes: "It consists, admittedly, in misleading the spectator's senses, in order to screen from detection certain details for which secrecy is required. It militates against the spectator's faculties of observation, not against his understanding. Broadly, it may be said to comprise three general methods, viz. - Distraction, Disguise, and Simulation. Every means employed by magicians for misdirecting the senses of an audience will be found allied to one or other of those elementary principles."   

The problem with "misdirection" is that it is meant for entertaining spectators, not governance and certainly not fighting health or economic crisis.  

When governments indulge in misdirection, governance is more likely to be a casualty and crisis more likely to worsen.

No more encore please.

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