According to him, the flawed calculation emanated from the view among India’s policy makers that the unorganized sector was “residual”, one reason why it has failed to receive “ample attention.” He underlined, “In GDP calculation, it is assumed that the unorganized sector is growing at a similar rate as the organized sector leading to overestimation of GDP.”
Referring to the impact of Covid-19 on the unorganized sector, Prof Kumar said, 94% of the employment in this sector yields 45% of the output and has low and negligible savings. “But when income fell for these 94% of the population during the lockdown, demand for essentials such as agricultural produce fell, as there was very little or no savings”, he said.
“There are over six crore enterprises majorly comprising micro units which had exhausted the savings quickly and are unable to restart”, Prof Kumar noted, adding, “The situation is similar for self-employed like traders, mason, taxi and auto drivers, etc. Having the largest unorganized sector in the world, the situation is very difficult and worrisome.”
Pointing out that the Government of India’s estimation is based on last year’s GDP, Rs 204 lakh crore, Prof Kumar said, it should instead be based on Rs 145 lakh crore, as the economy showed a sharp downward turn.
Simultaneously disputing the data on unemployment during lockdown provided by the Centre of Monitoring Indian Economy (CMIE), a private consultancy firm, Prof Kumar said, unlike World War-2 and the global financial crisis of 2008, when employment was full, demand was short and production was shifted to other goods, lockdown led to mass unemployment.
According to him, CMIE estimated unemployment at around 122 million workers. However, the actual figure “stands at over 200 million”, if one incorporates the unorganised sector. He advise CMIE to “reconsider its sample”, as it allegedly did not take into account the workers who migrated to their natives, leading to its “underestimation.”
Prof Kumar said, all segments of society experienced reduction in consumption and investment, impacting demand and supply in the economy. As a result the businesses began failing. Thus, according to the All India Manufacturer Organization estimated, 30% of the businesses would fail. Similarly, the Confederation of All India Traders’ Association argued that 30% of the small traders would fail.
Referring to the impact of Covid-19 on the unorganized sector, Prof Kumar said, 94% of the employment in this sector yields 45% of the output and has low and negligible savings. “But when income fell for these 94% of the population during the lockdown, demand for essentials such as agricultural produce fell, as there was very little or no savings”, he said.
“There are over six crore enterprises majorly comprising micro units which had exhausted the savings quickly and are unable to restart”, Prof Kumar noted, adding, “The situation is similar for self-employed like traders, mason, taxi and auto drivers, etc. Having the largest unorganized sector in the world, the situation is very difficult and worrisome.”
Pointing out that the Government of India’s estimation is based on last year’s GDP, Rs 204 lakh crore, Prof Kumar said, it should instead be based on Rs 145 lakh crore, as the economy showed a sharp downward turn.
Simultaneously disputing the data on unemployment during lockdown provided by the Centre of Monitoring Indian Economy (CMIE), a private consultancy firm, Prof Kumar said, unlike World War-2 and the global financial crisis of 2008, when employment was full, demand was short and production was shifted to other goods, lockdown led to mass unemployment.
According to him, CMIE estimated unemployment at around 122 million workers. However, the actual figure “stands at over 200 million”, if one incorporates the unorganised sector. He advise CMIE to “reconsider its sample”, as it allegedly did not take into account the workers who migrated to their natives, leading to its “underestimation.”
Prof Kumar said, all segments of society experienced reduction in consumption and investment, impacting demand and supply in the economy. As a result the businesses began failing. Thus, according to the All India Manufacturer Organization estimated, 30% of the businesses would fail. Similarly, the Confederation of All India Traders’ Association argued that 30% of the small traders would fail.
In GDP calculation, it is assumed, unorganized sector is growing at a similar rate as organized sector, leading to its overestimation
He predicted, “Business failure is likely to be large in the coming year. There are high chances of this for high leverage firms who have a high ratio of debt against their equity. The government policy of a moratorium period of six months is only a temporary relief. The interests are accumulating. The commercial banks now fear that the NPAs would further rise.”
The economist said, “When the economy declines, so does the tax collections. This year’s budget was based on expectation that the economy would grow at 10%, but as the economy, leading to collapse in tax collection by more than 40%. Revenues of states and centre are likely to fall to 12% of GDP from 16.5%.”
Calling the Reserve Bank of India (RBI) of using interest rate card to boost economic activities in the country “ineffective”, he said, “When businesses are shut and production is stalled, then credit demand will not increase. This has led to surplus liquidity with commercial banks amounting to Rs 8 lakh crore as deposited with RBI by the banks.”
He added, “India is having more liquidity as compared to the pre-demonetization period but due to reduced velocity of circulation of money because of reduced economic activities, liquidity is in vain.”
Prof Kumar expected that in the post-pandemic situation, owing to the demand situation, there is threat of deflationary situation in the coming times. Suggesting the way forward he said, the government should issue Covid-19 bonds to immediately raise the money, and also utilise around Rs 8 lakh crore liquidity of funds currently lying, for the immediate expenditure needed for the ailing economy.
The economist said, “When the economy declines, so does the tax collections. This year’s budget was based on expectation that the economy would grow at 10%, but as the economy, leading to collapse in tax collection by more than 40%. Revenues of states and centre are likely to fall to 12% of GDP from 16.5%.”
Calling the Reserve Bank of India (RBI) of using interest rate card to boost economic activities in the country “ineffective”, he said, “When businesses are shut and production is stalled, then credit demand will not increase. This has led to surplus liquidity with commercial banks amounting to Rs 8 lakh crore as deposited with RBI by the banks.”
He added, “India is having more liquidity as compared to the pre-demonetization period but due to reduced velocity of circulation of money because of reduced economic activities, liquidity is in vain.”
Prof Kumar expected that in the post-pandemic situation, owing to the demand situation, there is threat of deflationary situation in the coming times. Suggesting the way forward he said, the government should issue Covid-19 bonds to immediately raise the money, and also utilise around Rs 8 lakh crore liquidity of funds currently lying, for the immediate expenditure needed for the ailing economy.
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