The Sad Story of the Stimulus
The Sad Story of the Stimulus

The Sad Story of the Stimulus

The shock is enormous, the people are left stunned, and the economy is reeling. Clearly, the 
The shock is enormous, the people are left stunned, and the economy is reeling. Clearly, the pandemic is taking an unprecedented toll on our bodies and minds.
 is taking an unprecedented toll on our bodies and minds. But there is this foreboding that something more disastrous is looming on the horizon. This apprehension is gaining ground from the ever declining GDP growth projections for the year 2020-21; In March, experts were talking about a 2 per cent growth for FY21, in April it became 0 per cent, in May it went down to -2 per cent, and today in early June, the forecast has plummeted to -5 per cent, with some naysayers pegging it at -10 per cent. While none of these numbers shock us any more, there are two major points to be remembered in this context.

Firstly, this recession is definitely going to hit India more than other countries, because we are entering this Covid-infested recession with two years of slowdown already having wounded our economy severely. This is aptly described as "We were already hurtling downhill, but now we are going to be thrown over the cliff".

And may be that is why even a projected -10 per cent decline in GDP does not shock us anymore. But we are in awe of what this means for the future. We are scared because we try to figure out the implications even as we have no past experience, nor any notion of what this may mean to our citizens and our existence. Understandably, this has not happened before, in our lifetime, and we have no precedents to fall back on. But the bottom line is clearly that India will be one of the worst hit nations in the aftermath of this war with the virus, and with its coffers already weakened by successive years of stretched finances, India's ability to claw out of this economic hole may be seriously impaired.

The second point to note is more profound and definite, and this has to do with our battle with poverty. I heard it said somewhere that pushing for economic growth is our moral obligation to the poor. Every 1 per cent additional growth of GDP per capita is said to lift three million people out of poverty and unfortunately the reverse is also true. As it is, the drooping growth of the last two years have been a great lost opportunity for us to improve the lot of lots of our underprivileged fellow countrymen. But that misfortune now looks like small change when we consider the deep impact of a 10 to 15 per cent swing of GDP growth number. Such an economic calamity will push at least 30 million people back into poverty, and take us backwards many years in our long and arduous developmental journey.

Like governments around the world, India has also announced a flurry of "stimulus" measures totalling up to an apparently massive 20 lakh crore package, purportedly hitting the golden mark of 10 per cent of our GDP. However, independent observers have analysed this to be really between 1.3 to 1.9 lakh crore only, the rest being deferments and credit lines, etc. The package has also been criticised for being silent about creating demand, which was the need of the hour. Given this background, it is now projected that recovery of our economy has to wait at least till next calendar year.

The cement industry was already impacted by the general economic slowdown in the economy. We noted that the production of cement in FY19 has shown a degrowth of 0.8 per cent already against a 13 per cent growth in the year before. And now with the Covid-19 pandemic, and what with the fact that the stimulus package has not done much to excite consumption, cement production is expected to decline by 25 to 30 per cent during FY21 and capacity utilisation is expected to be only about 45 per cent. If this does happen, this will be one of the steepest ever fall in capacity utilisation and production that the industry would have ever experienced.

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