Countdown: Can India Rebound from the Meltdown of the Century?

COUNTDOWN

COUNTDOWN

Can India Rebound from the Meltdown of the Century?

Anshuman Tiwari

Anindya Sengupta

BLOOMSBURY INDIA

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First published in India 2022

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To the memory of my father, late Ramesh Tiwari ‘Biram’, who wanted me to write a book on the Indian economy but unfortunately did not live to see this book. This book is also dedicated to my mother, Uma Tiwari—her affection and inspiration, despite her own difficult circumstances, helped him to complete this book.

—Anshuman Tiwari

To the wonderful bunch of friends I made during the course of Market Mantra nearly two decades back—late Prof B.B. Bhattacharya, Dr Amitendu Palit, Saugata Bhattacharya, Jayanta Das, Jayanta Roy Choudhury, Paranjoy Guha Thakurta, Puneet Jain, Arya Madanmohan, Subodh Mishra, Pradeep Kumar and above all, Subhomoy Bhattacharjee. They were all committed to understanding how market and economic policies shaped our lives and, more importantly, to communicate it in the simplest possible language—a theme this book carries forward.

—Anindya Sengupta

CONTENTS

Acknowledgements

Authors’ Note

Introduction: Back to the Beginning

EMPLOYMENT: A BILLION DREAMS

1Entrepreneurs: Small Is Awful

2Jobs: A Million Failures

3Rural: A New Crop of Poverty

4Middle Class: Middle of Nowhere

GOVERNANCE: THE BIGGEST FAULT LINE

5Corporates: Survival of the Richest

6Capital Crunch: Savers, Borrowers and Bankers

7State: Too Big to Bear

Conclusion: An Inevitable Countdown

Epilogue

Index

Acknowledgements

This book was written at a time of unprecedented disruptions and depressive darkness. This was more so for Anshuman, who lost his father just before the lockdown. Yet amidst this pall of gloom and uncertainty, friends and readers have provided the much-needed sustenance and encouragement to write—we are grateful to all of them.

Anshuman would like to acknowledge the manifold contributions of Subham Sankhdhar, Associate Editor of India Today. Md Waqas, Senior Editor, and Shivakesh Mishra, Associate Editor, of India Today have provided critical feedback and editorial guidance.

We are grateful to illustrator and designer Asit Roy, who has painstakingly prepared all the charts and graphics.

As the first reader of the book, Atoorva’s encouragements, suggestions and criticism have helped to shape this book in many ways.

Govind Bhattacharjee, Shantanu Pratap Singh and Ashutosh Pandey read through some of the chapters and their suggestions and criticisms have helped us a great deal.

We are truly grateful to Bijit Mukherjee, who has painstakingly gone through the entire English manuscript and helped us to vastly improve this book editorially.

We would like to thank Praveen Tiwari, Nitin Valecha and the entire Bloomsbury team for their extraordinary support and commitment. Special thanks to Shreya Chakraborti and Megha Mukherjee for their invaluable editorial assistance.

For any inadvertent error or shortcomings, however, only the two of us remain responsible.

Authors’ Note

A virulent virus led to a global pandemic and a pandemic-induced lockdown upended our world in 2020. This was the single largest disruption of economic resources globally since the Second World War (1939–1945). The events that followed the announcement of a nationwide lockdown on 24 March 2020 made it clear that this was going to be a pivotal point in India’s recent history.

In March 2021, the deadly virus came back in a devastating second wave. Again, economy slowly came to a standstill but more than that, this time, it resulted in an unprecedented medical crisis. According to government statistics, in just two months (April–May 2021), around 1.45 lakh people died from COVID (toll is much higher in other estimates).

With 3.3 lakh COVID deaths in little more than a year, surging unemployment, rise of the new poor, frustration of middle class and now, what seems to be a long and deep recession ahead, the Indian economy is at a turning point.

This book, however, is in no way a description/analysis of this pandemic or the extraordinary lockdown, the gradual normalisation of economic activities or the ravages of the second wave. Rather, it seeks to explore the recent fault lines of the Indian economy through the prism of this great pandemic-recession.

For the time being, this unprecedented disruption caused by the lockdown and subsequent health crisis might have overshadowed the downhill slide of the Indian economy that began in 2012 but while dealing with this lockdown-recession, it is important to remember this context. The central challenge of the economy has been to find jobs for millions of people in a young nation. Even during the best years of growth, India could not create enough jobs. As slowdown took hold, India could create just 40 lakh jobs annually between 2012 and 2018 against a fresh entry of at least 1.2 crores into the job market every year.

Even as we continue to grapple with this mammoth challenge, India’s greatest resource, her young demography, will start waning in a decade’s time.

The policy choices we make today that will determine not only the immediate growth trajectory but whether India could transform her economy in a sustainable and equitable manner before losing her demographic dividend.

Economic discussions in India are either mired in political controversies or cloaked in jargons. Often a deluge of data overwhelms without really enriching our understanding. While we do not claim to provide a balanced narrative always, we seek to cut the clutter and present a bottom-up understanding of the economic choices that shape our everyday life.

Introduction:

Back to the Beginning

It was a depressing afternoon of April 2021. There were terrible news all around. Every phone call and message was about unavailability of hospital beds, oxygen crisis or a hunt for life-saving medicines. Pictures of mass cremations and floating dead bodies left everyone numb. It was then when Govind called us in utter desperation. They had been waiting outside the district hospital for hours. His mother was gasping for oxygen but there was no bed. We called up a few bureaucrat friends but by the time the message reached to the hospital, it was too late for her. Next fight was to get a place for her in the funeral queue....

In April 2020, on the shining Delhi–Lucknow Expressway, we came across Govind. Having all his hopes completely shattered, 32-year-old Govind was walking back to his village holding his son’s hand and carrying a large bag on his shoulder. His village, somewhere near UP–Bihar border, was some 700 kilometres away. Govind was part of the invisible India that had come out onto the highways across the country amidst the nation-wide lockdown in April–May 2020. This was the largest reverse migration in India’s recent history.

Govind used to drive an Ola cab in Delhi. Bought on credit, his car was his passport to a better future. Leaving his car behind, as Govind was walking back to his village, the Indian economy was heading towards a COVID-19-induced meltdown. By the time Govind reached his village, it was quite apparent that the economy, instead of expanding, would actually contract in 2020.

Govind is barely literate but he is street-smart. In Delhi, over the years, he has learnt to follow basic English instructions. What he lacked in terms of formal qualifications, he compensated with his practical skills and hard work. This has stood him in good stead as he tried to build a better future for himself and his family in the national capital. He knew that his dreams were shattered and he was going back to the same poverty, debt trap and hopelessness he had always wanted to escape.

Exactly a year later, in April 2021, Govind’s mother became one of those countless victims of COVID in India. Not just proper medical attention, she was deprived of even a decent funeral. His father had COVID too, though he survived. By the time the second wave subsided in June 2021, Govind became part of India’s new poor. Already surviving with meagre wages of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) work, he had to spend his last remaining savings for treatment of his parents.

Govind’s journey is actually the narrative of India’s economic growth. Over the last quarter century, millions of people like him were the unknown protagonists of this story. This growth was gradually slowing down in the last few years—demonetisation and the Goods and Services Tax (GST) had badly hit demand; savings and consumptions were steadily coming down; and the economy was sliding into a recession. Then this lockdown suddenly brought the economy to a crashing halt.

Till they were forced to hit the road, we did not really know how vulnerable people like Govind were. In the absence of any social-security net, more than 40 crore people, who were either below the official poverty line or barely above it, were most brutally exposed. A CMIE–Chicago Booth survey found that the sudden lockdown adversely affected the income of 88% of Indian families. But out of them, only 34% of the families could survive without any help for a week and another 30% for just a month. Obviously, they had to hit the road.

Sixty per cent of India’s GDP is powered by the consumption of ordinary people, those who hailed a ride in Govind’s taxi. It is the income and consumption of people like Govind and his customers that principally drive the Indian economy. As their income and consumption came to an abrupt halt, Indian economy fell into the vortex of negative growth (-7.3% in 2020–2021) and seems to be on the verge of losing almost all the gains that more than a quarter century of economic liberalisation (1991–2019) had brought forth.

The economy started to recover in the second half of 2020 but the income, employment or even nutrition levels were yet to recover fully before a deadly second COVID wave struck in March 2021. By then, the Indian economy had permanently lost more than ₹10 lakh crore and many businesses disappeared permanently.

This was a unique crisis-growth plummeted because people like Govind had stopped consuming but, at the same time, Govind himself was a victim as his income suddenly evaporated.

Govind is one of those 47 crore employed Indians and nearly one-fourth of them lost their jobs/livelihoods during the lockdown. Most of them went back to their villages and sought work under MGNREGA, an employment guarantee scheme, which was launched in 2005 to provide a minimum of 100-day employment to the poorest, especially during natural calamities like droughts or floods. Even after the lockdown was lifted, jobs did not come back for many nor could all of them go back to their small businesses. So, for millions like Govind, MGNREGA was their only option.

Though problems were gradually increasing for him over the last three to four years, Govind could never think that one day he would have to leave everything and go back to his village empty-handed and seek work under MGNREGA. So, before he could reconcile to his fate, Govind tried every possible option. But from all quarters, he heard only stories of job losses and business closure and could not see any ray of hope anywhere.

Govind’s City

Before he started packing his bag, Govind called up Mr Khanduja of Wazirpur. Almost 12 years ago, when he arrived at the Kashmere Gate Bus Terminus for the first time, a fellow villager, Ramkhelawan, took him to Khanduja’s factory. That utensil factory was Govind’s first address in the city. He did not earn a lot but yes, he learnt basic city-survival tricks there and that helped him to jump from one job to another in the next few years. Govind hoped that his old employer would be able to provide some help and he would sell off his car and go back to his factory.

Khanduja’s factory had been around for many years but for the last six years or so, he had been struggling. Instead of investing more in new technology and improving quality, he found a cheaper shortcut—he started importing utensils from China and sold them under his brand name. As this new business flourished, he started importing electric goods from China too. His factory shrank gradually but his business did not suffer. However, from a small-scale manufacturer, Khanduja had now become more of a trader. Earlier, he had also taken a dealership of car batteries and tyres, but this same model of cheap Chinese import finished off those businesses. Khanduja has been trying recently to get some civil works contracts using his political connections.

As he was going through this transition, Khanduja stacked up quite a lot of debt. Most of his business dealings were in cash and demonetisation had hit him hard. When the GST was introduced, his informal business space shrank even further. For the past several months, Khanduja had been trying hard, through a powerful politician, to put pressure on his state-owned bank to avoid a debt trap. Then, suddenly, the lockdown struck.

It has been six years since Govind left Wazirpur. Among his other employers, the battery-company owner in Noida has been struggling for long; the labour contractor, who got him a job with a Gurgaon-based garment exporter, told him that the unit is indefinitely shut and the Big Bazaar store manager at a Dwarka mall told him that they were already running surplus staff.

Khanduja’s workers had mostly left for their villages and the demand for his utensils also seemed to have vanished with them. The 2020 lockdown forced Khanduja to rethink his entire business strategy—he decided to get a distributorship of some large monopoly business. But luck had something else in store for him. Even as he was trying to resist bank’s pressure for loan recovery, Delhi was hit hard by the second COVID wave. With all his money and connections, Khanduja could not arrange an ICU bed for his wife. From oxygen langar at Gurudwara to paying exorbitant amount for Remdesivir injection, he tried all but could not save her. Not only the experience left him traumatised, but now his children have lost their faith in India and want to shift to Canada or Australia.

At Wazirpur, Noida, Gurgaon, Surat, Indore, Tirupur, Kolkata and Meerut, small manufacturing businesses owned by innumerable Khandujas had started declining for quite some time, forcing them to shift towards services.

In fact, the last decade has been quite a disaster for small enterprises, which were the stepping stone for people like Govind to find a toehold in the India growth story. Around 60% of these enterprises are run from home (or without a fixed infrastructure). Out of these, 54% do not employ anyone other than the owner. Since the end of the 1990s, their sizes have been getting smaller and, essentially, they are becoming self-employed businesses.

Since most areas of production have been captured either by cheap imports or by large monopolistic corporates, jobs were available only in services, but the 2020 lockdown crushed that as well.

As wages stagnated, Govind shifted to driving cabs after demonetisation. Before that, his last job was to drive a goods van for that Big Bazaar store at Dwarka. His taxi was affiliated to both Uber and Ola and he started earning a decent sum. This encouraged him to bring his family to Delhi. His wife also found a sales counter job at the same Dwarka mall.

Govind would have continued as a taxi driver for long had he not met Rohan.

Rohan’s Reality Check

Like Govind, Rohan was also from Uttar Pradesh. He came to Dwarka after finishing his MBA from a well-known business school. After shuffling a few jobs, he landed in an international audit firm. His job profile was also quite interesting—he was required to check the quality of services and facilities in five-star hotels. This job gave Rohan the opportunity to travel around the world. He used to stay at top hotels like an ordinary guest and prepare their performance reports. These confidential reports were sent to the owners and investors of those properties by his audit firm. Such reports helped them to improve their services. A lot of these new services have only emerged in India in the last few years, which have helped to create a new upper-middle class in metropolitan cities.

Rohan had an exciting career. His company opened a new office in Gurgaon in 2015 and expanded their work further. As Rohan’s income increased, he shifted from Dwarka to Gurgaon and bought quite a large apartment in an upscale housing project. It was far beyond his budget, but a leading private bank was ready to help him out. Though he already had a car loan, it was not difficult for him to pay the EMIs.

His wife worked in an advertising firm. She took a break when their daughter was born. She had always been passionate about baking and after shifting to Gurgaon, she started