Facebook's next big thing Anna Kramer writes: Social shopping is perhaps the one thing Amazon hasn't yet figured out, and the folks at Facebook seem to know it. The accuracy of Instagram's targeted advertising algorithm — if you haven't succumbed at least once, are you even online? — is just the beginning. While we're all wondering how much of the pandemic-induced rise of ecommerce will last beyond 2020, the social companies are gearing up for a different fight down the road. Facebook named about 40 startups to a commerce-focused accelerator program last month, and they're all based in the Middle East and Latin America, places where social media adoption and engagement are still growing aggressively and where traditional ecommerce is less popular than it is in China or here in the U.S.
Facebook clearly wants to make Facebook Marketplace easier to use (and more popular). While the company isn't explicitly using the accelerator program to vet startups for venture investments or acquisition, it hopes to build long-term relationships with a bunch of these companies, a spokesperson told me.
Focusing on startups outside the U.S. could be a clever move for the company. Experts told me that social shopping could grow faster in places without the robust, traditional ecommerce ecosystems like the one we have in the U.S. By strengthening the startups in these regions, Facebook could successfully build out social commerce there before others get a chance.
7 Ways to Sabotage Your Financial Future Nobody’s perfect, especially when it comes to money and saving for retirement. Here are a few financial mistakes to avoid. Kiplinger
Photos from Getty Images.
Why would anyone sabotage their own future? It’s not typically a conscious decision, but the product of focusing on short-term gains instead of long-term results. Here are some common ways we sabotage ourselves:
Hitting the snooze button because the bed is so warm, and the gym doesn’t sound fun at 5 a.m.
Deciding to get gas tomorrow when you may be pressed for time instead of today when you have time, but you’re tired.
Checking out social media when you should be finishing an important project with an impending deadline.
Some of these are more serious than others, but we often make decisions that set ourselves up for long-term failure without even realizing that’s what we’re doing. Here are seven ways you can sabotage your own financial future and work against yourself.
Missing Out on Opportunities (to Save)
Do you have FOMO? That’s the internet-era term short for “Fear of Missing Out.” Financially, people are often afraid of missing out on purchasing the latest “hot” deal: a new electronic device, the latest model luxury car, or a Black Friday deal that’s too hot to pass up. A few impulse purchases over time may not lead you to financial ruin, but missing out on savings opportunities certainly can.
I’ve written about the power of saving early (see 3 Great Reasons Why You Should Start Saving Early). The lesson is that you can’t get time back, and missed opportunities to save now means one of two things: You either need to add time on the back end — which means delaying retirement – or you need to take on more risk on your investments. By following your FOMO on impulse purchases, you may keep missing out on savings opportunities and significantly decreasing the odds of achieving financial independence.
Making Big Purchases with Irrevocable Consequences
OK, irrevocable is a bit strong, but I use that word to make my point. If you splurge and buy an outrageously expensive pair of shoes late one night from your smartphone, it may not be a wise decision, but it likely won’t lead you to financial catastrophe.
What are decisions that can lead to financial ruin? Big decisions that are hard to undo, such as the purchase of a house, car or boat. There’s a house for sale in my suburban neighborhood that has been on the market for years. It’s beautiful and has truly amazing architecture. The only problem is it is about 10 times more expensive than every other home around it, and nobody else seems to share the owner’s specific taste. Millions of dollars of equity are tied up in a decision to build an asset that can’t be liquidated. I don’t know the owner’s story, but I’ve seen many stories like it, and it isn’t pretty.
Resale value should always be considered when making big purchases. The more unique an asset is, the fewer buyers it brings. This decision could leave you stuck with a unique, but illiquid asset. Tying up a significant percentage of your net worth in illiquid assets can be a great way to sabotage yourself. If and when you need liquidity, there’s no guarantee that a buyer would be willing and able to pay what you need for that asset.
Falling Prey to Lifestyle Creep
Getting a pay raise is always exciting, but what you do with that increased income can separate the wealthy from the perpetually poor. As income goes up, there is a natural desire for some people to increase spending and upgrade their lifestyle.
Many would assume the solution to all financial problems is to earn more money. However, when more income is matched with higher expenses, such as second homes, luxury cars or multiple country club memberships, this margin may never appear. I recently met a successful doctor with a seven-figure income last year who found cash flow to be tight each month. To solve this issue, he began automatically saving several thousand dollars per month from checking to his investment account. By constantly upgrading your lifestyle to keep up with or even outpace income growth, you may find that no matter how much income you earn you always feel squeezed.
Setting the Wrong Priorities
Did you know it’s possible to be a great saver and still sabotage yourself financially? It’s simple: You save for all the wrong things. Here’s the real kicker, they can be noble goals. For example, saving for your kids’ college or private education is a great goal. But where does that fall on your personal list of priorities?
Make sure you’re on track for retirement and financial independence before diverting too much money toward a child’s education or a second home. All goals are not created equal and, unfortunately, sometimes even noble goals need to take a backseat. Only you will be saving for your retirement. There are far more options for how your kids can fund and obtain their education, including scholarships, grants, and even loans. You can easily sabotage your future (and your kids’) by paying for them to go to college … and then later being forced to move in with them when you’re 75 because you didn’t save enough money to retire with dignity.
Neglecting the Defense
A well-rounded financial plan blends offensive strategies, like investing in stocks, with defensive strategies, such as building an emergency fund and buying adequate insurance coverage.
For many people, cash reserves and covering all insurance needs just doesn’t excite them, so they put all their chips on offensive strategies. This strategy could work out great if life never throws you a curveball. I recommend that all my clients purchase umbrella insurance to protect their assets above and beyond their home and auto policy limits. Shortly after one of my clients acquired this excess liability coverage, he was involved in a multi-car accident in Atlanta. He was so relieved to have the peace of mind that he was adequately insured for such a circumstance.
Being underinsured and ill-prepared to fund an emergency could set you back years on your investing plan, undoing any potential advantage to skipping the defense. Playing offense only with your finances is a lot more like a Las Vegas strategy than a financial plan.
Making Temporary Losses Permanent
Are you familiar with the term “paper losses?” For many people it’s easier to understand this with real assets than securities. If you buy a house for $500,000 today and six months from now it’s only worth $400,000, have you lost $100,000? Not really; it’s just on paper. Now if I knocked on your door and offered to pay you $400,000 and you accept, you can lock in that loss and make it permanent. However, if you ride it out and wait to sell your home at $500,000 or higher in the future, that loss was never realized.
The same is true for stocks. You own shares of stocks, bonds, and mutual funds. The value fluctuates daily but you can certainly panic and make a temporary loss become permanent by reacting to low values and selling to avoid further losses.
Someone told me recently they watched their account daily during the Great Recession in 2008. When their balance plummeted by 50%, they sold all of their investments in stocks and only held cash to avoid losing any more. Worse yet, when the market turned around, they stayed in cash, afraid to invest again for fear of losing more. Instead of avoiding more losses, he simply galvanized that one as a permanent loss of capital. Do this a few times in your investing life and you can be certain to sabotage yourself no matter how much you have saved.
Doing it Alone
You’re familiar with the term “blind spots” when it comes to driving. Unfortunately, they exist in our everyday life too, especially our finances.
The big problem is that often, I can’t see my own blind spots and you can’t see yours, either. That’s often why we hire professionals to do a job we think we can do ourselves: They work with others every day and have seen others struggle with the same issues. Many people go it alone when it comes to financial planning. But, often, they don’t know what they don’t know. As a result, they can’t fix what they don’t see.
In our client conversations we often uncover blind spots in estate plans, taxes and savings strategies that were hiding in plain view. A financial adviser can serve as a guide to help you see your blind spots and help you avoid sabotaging your financial future.
Does Modi want small companies to fail?
By AAKAR PATEL
December 18, 2020 09:54 IST
India has too many small companies and this is inefficient.
It should instead have only a handful of very large players running its economy and these giants can then compete with the world, observes Aakar Patel.
IMAGE: Prime Minister Narendra Damodardas Modi pays homage at the National War Memorial in New Delhi on the occasion of Vijay
Diwas, December 16, 2020. Photograph: PTI Photo
The head of the NITI Aayog said something that upset many people and so he had to explain himself.
This was, of course, his statement, repeated twice, that India had too much democracy.
However something else was said in the same speech that did not get as much attention though, in my opinion, it is far more important and concerning.
The fact checking Web site altnews.in analysed the video recording of his speech and confirmed that he had indeed used the words he denied using. It reported: 'In India we are too much of a democracy so we keep supporting everybody.'
He went on to elaborate, 'For the first time in India a government has thought big in terms of size and scale and said we want to produce global champions. Nobody had the political will and the courage to say that we want to support five companies who want to be global champions. Everyone used to say I want to support everyone in India, I want to get votes from everyone.'
That second bit is the thing that got ignored.
The head of NITI Aayog, which is the prime minister's think-tank, was explaining the strategy of the Modi government on the economy.
It has not been articulated as clearly as it was in the statement above, but has been expressed in policy quite clearly.
In brief, the theory is that India has too many small companies and this is inefficient.
It should instead have only a handful of very large players running its economy and these giants can then compete with the world.
So what will the government do to make this possible? It will try and make it difficult for the small and medium size industrialists to compete.
This is also called 'formalisation'.
It assumes that the small and medium sized entities in business are all tax thieves.
They cheat the government by operating in cash. To make their existence difficult if not impossible, the first step is to remove cash from the economy.
This was done on Tuesday, November 8, 2016. Businesses that depended on cash transactions, even if they were legitimate ones, were not able to operate for weeks and were hampered for months.
The large businesses were not affected because they could do with electronic transfers just as the upper class in the metro areas managed with their credit cards.
The second stroke against the small and medium was the Goods and Services Tax which was made so complicated as to require large teams of people in-house for compliance.
The repeated and frequent filing of returns and the managing of the digital system meant that once again a large number of people exited from businesses that became unviable because of added cost or simply because people could not cope with the complications and chose to do something else.
Who benefited from the exit of the small and medium was again the large.
The third stroke was the lockdown of this year which broke the back of the small and medium, who had neither the cash reserves to be able to deal with such a blow or the ability to get staff to 'work from home'. The Economist, the most respected global magazine, reported that the net worth of Mukesh Ambani had gone up by 350% since November 2016.
The net worth of Gautam Adani has gone up by 750% in the same period.
And all this happened in an economy that has been in decline.
This month, December, is the 36th straight month that India's economic growth has been slowing down.
The collapse began in January 2018 according to government data and has continued for three years.
The finance ministry's chief economic advisor asked that a survey that the Modi government had refused to release be released finally.
What did it show? It showed that Indians were spending less money in 2018 than they had been in 2012.
Meaning that they were earning less also. Not all Indians, of course: some were making much more precisely because of the fact that the others were making less.
Everything that seems to many to be puzzling about the Modi government's economic policy makes sense after we consider what it is deliberately doing to this nation.
Modi's former advisor and enthusiast Arvind Panagariya complained about Atmanirbhar, saying it was merely import substitution and had failed before.
What does that mean? It means that Modi has applied tariffs on imported things that Indians buy, like television sets and mobile phones, so that local industrialists can sell their goods at a higher price than the imported ones. Atmanirbhar privileges the industrialist over the consumer but that is not the way that it is advertised.
Who does the policy seek to make Atmanirbhar? It is not the consumer or the citizen.
It is those selected favourites of the government who have been tasked with winning while the rest of us are made deliberately to fail.
COVID-hit economy to contract 7.7% in 2020-21
January 07, 2021 23:37 IST
India's GDP is estimated to contract by a record 7.7 per cent during 2020-21 as the COVID-19 pandemic severely hit the key manufacturing and services segments, as per government projections released on Thursday.
Amid overall decline in economic activities, some respite was provided by the agriculture sector and utility services like power and gas supply, which have been projected to post positive growth during the current fiscal ending March 2021.
"Real GDP or GDP at Constant Prices (2011-12) in the year 2020-21 is likely to attain a level of Rs 134.40 lakh crore, as against the Provisional Estimate of GDP for the year 2019-20 of Rs 145.66 lakh crore...
"The growth in real GDP during 2020-21 is estimated at -7.7 per cent as compared to the growth rate of 4.2 per cent in 2019-20," said the first advanced estimates of national income released by the National Statistical Office (NSO).
The contraction in the Gross Domestic Product (GDP), however, would not be as steep as projected by certain international agencies like the IMF and World Bank.
Commenting on the data, the finance ministry said the GDP estimates suggest a continued resurgence in economic activity in the second half of the current fiscal and point at post-lockdown sustained V-shaped recovery.
"The AE of 2020-21 reflect continued resurgence in economic activity in Q3 and Q4 - which would enable the Indian economy to end the year with a contraction of 7.7 per cent," it said in a statement.
CII director general Chandrajit Banerjee said the advance estimates (AE) for the full year show "a much shallower decline than earlier expected".
State Bank of India's research report Ecowrap said, "It's now official. Due to the COVID pandemic India will witness negative GDP growth rate for the first time after 1979-80."
"If we juxtapose the data which is available for H1 and look at the FY21 estimates, CSO is expecting some recovery in services sector, with financial, insurance, real estate services leading," it said.
Meanwhile, NSO also estimated the Real Gross Value Added (GVA) at basic prices at Rs 123.39 lakh crore in 2020-21, as against Rs 133.01 lakh crore in 2019-20, showing a contraction of 7.2 per cent.
GVA does not factor in net taxes.
GVA in the key manufacturing sector is likely to see a contraction of 9.4 per cent during 2020-21 as compared to a flat growth of 0.03 per cent in the year ago period.
'Mining and quarrying', and 'trade, hotels, transport, communication and services related to broadcasting' GVAs are likely to contract by 12.4 per cent and 21.4 per cent, respectively.
The construction sector too is projected to contract by 12.6 per cent, 'public administration, defence and other services' by 3.7 per cent, and 'financial, real estate, and professional services' by 0.8 per cent, as per the data.
On the other hand, 'agriculture, forestry and fishing' sector has been projected to grow at 3.4 per cent during the fiscal.
The sector had posted a growth of 4 per cent in 2019-20.
Similarly, 'electricity, gas, water supply and other utility services' is likely to post a growth of 2.7 per cent during the year ending March 2021.
This compares with 4.1 per cent expansion during 2019-20.
The economy contracted by a massive 23.9 per cent in the first quarter and 7.5 per cent in the second quarter on account of the COVID-19 pandemic.
The government has been stressing that economic activities are picking up post gradual unlocking of the economy and stimulus packages, and the country would witness a V-shaped growth.
The country's monetary authority, the RBI, had said the second half of the fiscal is expected to show some positive growth.
RBI has forecasted real GDP growth at (-) 7.5 per cent in 2020-21, which is an improvement over its previous projection of 9.5 per cent contraction.
The World Bank in its latest Global Economic Prospects estimated India's economy to contract by 9.6 per cent in the fiscal year 2020-21, reflecting a sharp drop in household spending and private investment.
The growth is expected to recover to 5.4 per cent in 2021, it said.
According to the International Monetary Fund (IMF), India's economy is projected to contract by 10.3 per cent this year and likely to bounce back with an impressive expansion of 8.8 per cent next year.
Moody's Investors Service had recently upped the growth forecast to (-) 10.6 per cent, from its earlier estimate of (-) 11.5 per cent, saying the latest stimulus prioritises manufacturing and job creation and shifts focus to longer-term growth.
NSO said in wake of the pandemic, the data challenges in the case of other underlying macroeconomic indicators like the IIP and CPI used in the estimation of National Accounts aggregates, will also have implications on these estimates.
Further, the projected indices may significantly vary from the actual indices which in turn will depend on the pandemic-led economic situation prevalent during those months and specific measures, if any, taken by the government, it said.
"Estimates are therefore likely to undergo sharp revisions for the aforesaid causes in due course, as per the release calendar," it added.
The per capita net national income (NNI) at current prices is estimated at Rs 126,968, showing a contraction of 5.4 per cent, as compared to Rs 134,226 during 2019-20 with a growth rate of 6.1 per cent.
Gross Fixed Capital Formation (GFCF) at current prices is estimated at Rs 47.23 lakh crore in 2020-21 as against Rs 54.72 lakh crore in 2019-20.
At constant (2011-12) prices, the GFCF is estimated at Rs 37.07 lakh crore in 2020-21 as against Rs 43.34 lakh crore in 2019-20.
In November 2020, the Reserve Bank of India admitted that the Indian economy was in a technical recession.
The advanced estimate put out by the National Statistical Office pegs GDP growth at -7.7% for FY21.
In October last year, the IMF predicted that the Indian economy would bounce back with a growth of 8.8% in 2021.
According to Oxford Economics, though India's growth equilibrium would worsen substantially over the medium term, it would have a potential growth of 4.5% over 2020-2025 as opposed to their earlier prediction of 6.5%.
According to the India Ratings agency, India's GDP is expected to contract 7.8% to Rs 134.33 lakh crore in 2020-2021, but may grow at 9.6% in 2021-2022.
The India Ratings report also says that the economy, though projected to grow at 9.6% in the next financial year in year-on-year growth term, may grow just 1% in real terms to Rs 147.17 lakh crore as against the Rs 145.66 lakh crore in 2019-2020.
What does it mean in real terms for the Indian economy?
In the first part of an interview with Shobha Warrier/Rediff.com, the director and principal economist at the India Ratings agency, Dr Sunil Kumar Sinha, outlines the economic outlook for India 2021-2022.
From a contraction of 23.9% in the first quarter of the current financial year, Indian economy recovered by -7.5% in the second quarter.
Is relaxing the lockdown the only reason behind this recovery?
Yes, lifting of the lockdown is certainly one of the reasons, because the kind of contraction we saw in the first quarter was largely due to the lockdown.
Since the lockdown was relaxed from June onwards, it helped the economy to recover in the second quarter.
However, we must also understand that typically the second quarter of every year is also the time when a lot of restocking takes place mainly because for the festive season in mind.
So, the contraction dropping from 23.9% to 7.5% is actually a mix of both.
But what we have to watch out for is the number we are going to get for the 3rd and the 4th quarters.
I feel the recovery we saw in the 2nd quarter will continue in the 3rd and 4th quarter also.
You may see contraction in the 3rd quarter also but there may be a kind of levelling or marginal positive growth in the 4th quarter.
But for the entire fiscal year 2020-2021, GDP growth will remain in negative territory.
Our assessment is a 7.8% negative growth for the entire fiscal year.
Photograph: Anushree Fadnavis/Reuters Is the negative growth largely due to the pandemic?
Yes. But if you look at fiscal year 2020, it was also not a very good year. In 2019 itself, the economy was slowing down and everybody was complaining about lack of demand...
Absolutely. If you look at GDP growth in the last few years, you will see that there were quite a few shocks.
It all started with demonetisation, followed by GST.
Both had negative impact on the unorganised and informal sector.
Also, on small and medium enterprises.
The demand disruption and also production disruption that took place in the unorganised and SME sector had to obviously show up in the overall demand.
In fact, the impact or the lack of demand started showing with a lag.
In 2016, we had De-Mon and in 2017, we had GST.
But the combined impact of these two started showing up in 2019 and 2020.
It became obvious that the kind of income growth most people were expecting was not going to happen.
Urban consumers, who was hoping for a rise in income, realised that it was not likely to happen.
So, they started to put a stop to leverage consumption which became more pronounced in fiscal year 2020.
Naturally this adversely impacted the urban consumption demand which in turn got reflected in slower GDP growth.
My view is that this slowdown in urban consumption would have come at least a few years earlier, but for the 7th Pay Commission revision which provided the necessary support to the urban consumption demand.
By the time we entered fiscal year 2019 and 2020, the stimulus provided by the 7th Pay Commission had played out and the adverse impact of De-Mon and GST was visible on the economy putting a break to 7-8% GDP growth.
As the sentiment of urban consumers worsened, particularly in the private sector, suddenly their consumption behaviour also changed as compared to what they have been following for the last couple of years.
This got more pronounced in fiscal year 2020. We saw a steady decline in GDP growth from 2016 onwards, from 8.26% to 4.2% in 2019...
In the first two years of the NDA (National Democratic Alliance government headed by Prime Minister Narendra Damodardas Modi), we saw growth in GDP.
In fiscal year 2015 and 2016, GDP growth, in fact, improved.
It was firstly because the commodities prices crashed in 2014 including that of oil; it touched a record low level.
This had a positive effect on growth across the globe including India.
Added to that is, some of the policy paralysis which we saw during UPA 2, changed with NDA 1 coming to rule.
So, things were improving in fiscal year 2015 and 2016.
Then came the De-Mon shock in fiscal year 2017.
Even before the economy could recover from the De-Mon shock, came the rollout of GST.
Since then, things started deteriorating steadily.
From then on, urban consumers started either holding back their expenditure or cutting down.
This started showing in fiscal year 2019, and became more pronounced in fiscal year 2020.
COVID-19 only added insult to injury.
Photograph: Francis Mascarenhas/Rediff.com Would you say, the wounds in the economy are self-inflicted?
Probably. If you look at years before 2016-2017, you will see that the GDP of the Indian economy typically behaved in tandem with the global economic growth.
However, in subsequent years, till the pandemic hit us, India's economic growth appeared as if it had decoupled from global growth.
Theoretically, there was nothing wrong in the rollout of GST.
The problem was with the implementation.
But the same cannot be said about De-Mon; whether it helped the economy in any way.
None of the objectives which were stated for De-Mon, happened.
One of them was digitisation.
But the amount of cash that is back in the system clearly shows that the objectives were not achieved. Pranab Mukherjee in his memoir wrote that the objectives of demonetisation were not met...
True. That was because it was not done with a very thought out strategy.
De-Mon was done in haste, only with a hope.
There was no background work done to check on whether it will benefit or not.
It was done with just a hope that it would benefit. Do you feel it is not possible to digitise India's unorganised sector and the MSME sector as it is largely cash based?
More than that, anything that is done without fair amount of ground work to find out whether it is workable or not, is bound to fail.
You have to do a pilot study first.
In the case of De-Mon, you only had a hope that it would do A, B, C.
In hindsight, it is pretty clear that De-Mon had only a negative result on the Indian economy.
'This is not growth; this is de-growth'
By SHOBHA WARRIER
January 15, 2021 08:13 IST
'It will be only in fiscal year 2023 when the size of the Indian economy will be bigger than what it was in 2020, you will see demand and employment rising.'
IMAGE: People throng a market in Ahmedabad following the relaxation in the lockdown. Photograph: Amit Dave/Reuters
"We lost two years without any growth due to COVID-19," Dr Sunil Kumar Sinha, director and principal economist at the India Ratings agency, tells Rediff.com's Shobha Warrier in the concluding part of a two-part interview.
How long do you think it will take for the wounds in the economy to heal?
The economy had suffered quite a few shocks; some man-made and some natural.
These have given consecutive setbacks to the economy.
De-Mon and GST have severely dented the unorganised and the SME sector, and led to job losses.
The entire approach to GST should have been one of fair amount of hand holding of the businesses, particularly the unorganised and SME sector so that as and when it was rolled out, it caused less disruption and pain.
So, the growth which the economy would have had without these structural changes or Covid, been very different from what we are witnessing right now. How different would it have been?
I will give you a simple example.
Let us assume at the end of fiscal year 2020, the total size of the economy was Rs 100.
If the GDP growth in fiscal year 2021 declined by say, 8% or 10%, the overall size of the Indian economy would then be less than Rs 100.
If it is 8% decline, it will be Rs 92.
In Rs 92, even if you get a 10% growth, you will add only another 9.2 which means you barely touch 100.
So, in the fiscal year 2022, the size of the economy will only be 100 which was the size in fiscal year 2020!
So, in effect, we lost two years without any growth due to COVID-19.
Had the economy grown at 5% each in 2021 and 2022, then the size of the economy in 2021 would have been 105, and 110 in fiscal year 2022.
But because of Covid, you are going to be just 100 at the end of fiscal year 2022! Your report says that GDP is expected to contract 7.8% to Rs 134.33 lakh crore in 2020-021, but may grow 9.6% to Rs 147.17 lakh crore in 2021-2022.
You further say that 'the growth numbers suggest a strong V-shaped recovery, leading to the belief that the economy is out of the woods and on the path of a strong recovery.'
What does it mean?
From the bottom that we touched in the first quarter, that is negative 23.9%, we are recovering.
What I am saying is, recovery is there as you are no longer down by 24%, you are only down by 7.5% and probably reach where we were by the end of fiscal year 2020.
The question is, how long will it take for you to recover whatever ground you have lost due to Covid. You mean, only then we will be able to say we are really recovering?
Exactly. If you look at everything in year-on-year term, it hides the actual situation.
It only gives you the incremental situation.
Because your last position was so bad, even a small recovery looks better.
In such circumstances, it is better not to look at y-o-y growth because a very low base of 2020 will give you a very high growth of 2021.
You cannot feel happy that the economy has grown at 10%, because the fact is, you still have not reached the size that was prevalent before the lockdown.
IMAGE: A worker cleans a machine at a factory in Kolkata. Photograph: Rupak De Chowdhuri/Reuters Your report says the economy may grow at 9.6% in 2021. Can you call it real growth?
In real terms, it is not growth.
It is like, you reach the same size where you were before the lockdown.
So, in real terms, it is not growth.
Because your 2021 was negative, the 9.6% growth looks good. So, it is not exactly growth, it is just recovery...
Yes, you are only recovering.
That's why I said, you can say you are recovering.
And the recovery is fast. But you can't say you are growing as you are still some distance away from the level where you were when COVID-19 lockdown happened. Even before the pandemic, the economy was slowing down....
Still, it was growing. Though the GDP did not grow at 6 or 7%, nevertheless, it was growing at 4.2% in fiscal year 2020. It still was growth.
But fiscal year 2021 is going to witness 7.5-8% contraction! This is not growth; this is de-growth.
On top of this, even if you get a growth of 9.6% in fiscal year 2022, you will only reach the level where you were at the end of fiscal year 2020. Is that why your report says, in annual terms, 2021-2022 will appear to be a good year, but in actual terms, it will only be slightly better than 2019-2020?
Exactly. The economy, though projected to grow 9.6% in the next financial year on year-on-year growth term, it may grow just 1% in real terms to Rs 147.17 lakh crore as against Rs 145.66 lakh crore in 2019-2020. Your report also says the economy will be able to just recover the lost ground in 2021-2022, and surpass the 2019-2020 GDP level in a meaningful way only in 2022-2023...
Yes. Let us assume that in fiscal year 2020, X number of people were employed, but when the size shrunk in fiscal year 2021, the same number of people could not be employed.
Either there will be a pay cut, or job loss.
So, when you grow at 9.6% in 2022, even when we assume all these people will get their jobs back or full salary, it only means you have reached the level of employment and income in 2022 that is equal to what was in fiscal year 2020.
So, the incremental demand in the economy would still not be there.
It was only recovering the lost ground.
It will only in fiscal year 2023 when the size of the Indian economy will be bigger than what it was in 2020, you will see demand and employment rising. How much potential does the economy have to grow?
There is something called potential rate of growth and actual rate of growth.
In the Indian context, the potential rate of growth was around 7-7.5%. However, because of various shocks, the actual rate of growth turned out to be much lower.
Now that some structural changes have taken place because of the shocks, the potential rate of growth has come down to 5-5.5%. What should the finance minister be doing to stimulate demand? We have been hearing the same question for the last few years...
To stimulate demand, the government has to undertake higher expenditure.
The constraining factor for the government is that it is in a very tight fiscal spot for the last several years.
Normally, it is said that the Budget making should be counter-cyclical.
It means when the economy is growing at a reasonable rate, you should bring down the fiscal deficit to a much lower level so that when the economy is in a difficult situation, you have the fiscal space available to increase the fiscal deficit and spend more.
Unfortunately, in the Indian context, fiscal deficit has been higher over the years and there was hardly any fiscal space to stimulate demand. Is it a catch-22 situation for the government?
Yes, kind of. What is required is to step up expenditure.
In a risk-averse situation, if anything has to be done, it can only be done by the government.
But they do not have the fiscal space to support demand.
That has been the criticism of all the packages announced by the FM till now; that there is very little demand stimulus in the packages.
Most of them addressed only the supply side disruption.
Unless you address both demand and supply, the problem is not going to be solved.
But the RBI has been quite pro-active with the monetary policy.
I don't think there is a magic wand either with the RBI or the government.
Once the mass vaccination takes place and herd immunity is created, most of the economic problems we are facing now, will gradually go away.
So, the answer to the question when will the economy recover, is not in the domain of the FM or the RBI.
Giving fiscal and monetary stimulus can reduce economic pain but the answer to the resumption of normal economic activity and economic growth lies in the domain of medical science.
The situation we are in currently is not created by the economy, neither by the supply side nor by the demand side.
It has been created by a medical emergency.
So, unless and until a solution is found by the medical fraternity, this economic problem will not get solved.