 Hello and let's talk about the IMF downgrading India's economic growth. According to the IMF, that's the International Monetary Fund, India's economy will decline by 4.5% for the year 2020. And India is not alone in this mess. The global economy is also expected to shrink by 4.9% this year, as COVID-19 continues to rage in many countries. The interesting, or rather the depressing aspect is that this change in projections has happened in just a few months. The previous edition of the World Economic Outlook in which these numbers come that came out in April had predicted that India's GDP growth would be at 1.9%. So the fall in the estimate in the past 3 months is by 6.4%, which is pretty steep. The US economy is expected to contract by 8% this year. The only country bucking the trend is China, which will still see growth according to the report, but by just 1%. The report also says that 2021, which now seems ages away, will see a reversal of this trend. However, the important thing to note is that we still haven't seen the full extent of the COVID-19 crisis. Fresh waves of cases are being reported in many countries. The US, Brazil and India, which are key drivers of the global economy are still very much epicenters of the disease. So it's totally unclear how long this crisis will last. And if the current situation continues, some of these numbers may even have to be revised further downwards. We talked to journalists and economic analysts on India Chakravarty on some of these issues. Thank you, Orindu, for joining us. So the World Economic Outlook, the report of the IMF is out and it seems to have a lot of bad news for both the global economy and for India's economy. So India's economy is, I suppose, which earlier the estimate was it would probably grow now. It's likely to actually contract. And so does it seem like, to start with, does it look like the damage stops here or is it likely to be much, much worse? You know, one doesn't really know. I think that there are reasons to believe that damage could be much, much worse because you look at it. We've already had about two and a half months of lockdown and I know that the Prime Minister said that everything is back on track and we know that is not what the ground reports tell us. But some amount of economic activity is obviously back, people have to make money. The problem is that India is not being able to control the spread of COVID. It is increasing almost every day and India's graph is moving only in one direction and the lockdown seems to have failed in controlling it. We are not testing enough so we really don't know what the extent of COVID is and if there is a second wave then things could get worse. What the IMF is saying is that as you pointed out already that in April, the IMF said that India's economy will grow by about 2%. 1.9%. It was at number two position at that time because it looked like there will be a 21-day lockdown and India has acted very aggressively and this should stop things. Of course, the IMF didn't know that we had no preparation. It was an ad hoc lockdown. We had no preparation when it came to health services. We had no way to stop the spread of what was happening. Two months later in June, IMF has reversed that and is saying that India's economy is going to contract by 4.5%. We have said earlier that several other agencies have made worse predictions and when IMF came out with its April report, all the great supporters of the Modi government said that India is doing the best and India's economy is doing the best. I have never said that. I don't see any of them saying anything right now because now India's rank in terms of GDP growth has dropped to joint 10%. This is something that should worry the government but does the government have any answers to that? I don't think it has because it is even more of a fiscal fundamentalist and fiscal hoc than the IMF it says. The key question here of course is that as far as the government is concerned like you said there are not many answers but this is also a global phenomenon. Again, the global estimates have also been revised. The scene especially looks bad in the United States because we see the case count increasing massively even right now. Many countries are actually reporting second or third waves as well. Globally I think there is no real end in sight as far as the disease is concerned and the economic impact. Absolutely. The question is whether the disease is as virulent as fatal as it was earlier. That's the question because in Italy some doctors are saying that it might have mutated. We are saying older people who were dying within 6-7 days are now going back home after 6-7 days without any oxygen support without any significant support from respirators and stuff like that. So has that changed in some parts of the world? Have a certain degree of immunity already developed? Were people infected who were not identified? We don't really know that. The question is how long can the economy get locked up? What we can see Prashant is that in some parts of the world the governments have approached it very aggressively and they have managed to turn things around in the economy even compared to what economists had predicted. We have seen that happen in the US for instance when it comes to jobs. The point also is that much of these western countries are much more integrated with China. So the slowdown in China affected them much more than it affects us because if we look at our imports from China, yes, large parts of our economy are also dependent on China but we are still about 14-15% dependent on China. But the US and Europe is heavily dependent on daily goods from China. China on the other hand appears to have recovered much faster because even China is doing worse than the April prediction of IMF but even then China is expected to grow by 1%. Many people have said that it will not. So China's recovery has been faster, India's has been slower, the rest of the world appears to be doing worse except for some countries like New Zealand which has, of course, supposedly eradicated COVID altogether. We know that in Beijing for instance there has been some amount of lockdown again schools have been shut because of the second wave. There has been a quick action. The question is whether India has the ability to deal with the economic impact of COVID-19 the fact that so many people are losing income and increasingly that has happened the longer this gets extended the more it is going to affect people who are part of the formal and visible economy Prashant because one thing that I have firmly believed that there is about 30-35% of India at least one-third of India is not even captured properly by GDP data so that part might be doing better now than it was doing earlier because of what the government has done and largely because of we don't have the Bihar elections some amount of money is being pushed into Bihar especially for migrant workers who don't want to go back, they carry a vote, their families carry votes so they will be looked after for now. The latest CMI, last week we discussed this Prashant and Mahesh Bihar so CMI has now kind of backed it with new data showing that the rural economy seems to be doing better, rural unemployment is now back to pre-lockdown days and that's not true for urban unemployment so my point is that if you look at the IMF, the IMF has suddenly turned socialist without saying so of course it is doing that within its limits we know that the IMF is one of those institutions which has pushed finance capital across the world over the last 40 years it has virtually been the poster boy the things which has pushed the ideology of finance capital privatization, globalization, decontrol, deregularization, financialization across the world so now suddenly IMF has started talking about public spending government investing in new economy which is going to be more environment friendly retraining workers because it is not sure that the private sector can do that it is saying that the government has to provide hiring incentives it has to give private sector incentives to higher people it has to hire people directly it has to give unemployment benefit to a larger number of people so in a sense it is rediscovering socialism which it helped defeat for the last 40 years or a model of welfare capitalism by socialism I mean what they call socialism essentially a state capitalism, a form of state capitalism obviously not socialism what they call socialism, anything that's melt off anything that's at the scent of any kind of welfare absolutely but to come back to the Indian context does even the IMF push or say calls by experts from across the country does any of it seem likely to convince the government to move in a different direction because we've analyzed the government's thinking process which is of course like you said it's very targeted towards the votes it has specific categories in mind but all this is not generally likely to have an economy wide effect as far as we understand my belief is that it will have the exact opposite effect and we've discussed this earlier because what is being given is essentially very low subsistence level income even if all the Mandraga expenditure is concentrated in let's say the next 6 months because it takes place in waves even then on an average a worker who gets a Mandraga job will earn about at best 5000 rupees from it and if there's no other work around of course we know that the monsoon has been better maybe there'll be a little bit of additional work they'll get in agriculture but what is it 6000, 7000, 8000 rupees a month household income and that is hardly anything that is not going to push the needle when it comes to demand for what the rest of the economy produces so at best it'll increase we know that poverty has reduced people's expenditure on food so maybe that will recover first because poor people spend most of their money on food and that will probably recover a little bit there might be a higher amount of medical expenditure but to say that demand for fast moving consumer goods demand for anything else, durable that's going to revive because of government spending at that level is I think just a dream it's not going to happen if the government had spent much more generated real jobs we know that Mandraga jobs are essentially a kind of unemployment benefit it's essentially a holding operation it's like what the Nawab of Awad supposedly did when he built the Badai Mambara during the famine and the famine caused huge amount of unemployment and hunger so supposedly workers were told build something during the day and break it down at night and they would essentially and that's where the Dampukth cuisine emerged supposedly they would put food, meat and spices and everything together and bury it under the ground under the embers and it would get cooked by early morning now that is the kind of unemployment benefit scheme that the government seems to have worked out this is not productive in the sense that it doesn't really create sustainable jobs which lead to better lives it does not really create assets in the sense that it should that money could have been spent directly by public sector units through government contracts to create real jobs not just jobs to dig holes which unfortunately many parts of Mandraga had become so effectively the government is doing a band-aid solution it could push up wages as we discussed last time it could push up wages and if that happens for entrepreneurs since in the last 7 to 8 years where we've had this economic slowdown much of urban self-employed people have operated in two or three sectors Prashant real estate has been declining but there's still been that a certain amount of construction trade, finance, retail these have been the big areas where people have kept themselves and have sustained their margin and a lot of it is because of very poor low paid wages that come from migrant workers 1 crore migrant workers have left and that is the number of people who were unemployed pre-lockdown in urban India about 8-9% of the total number of people who were appearing for work those who were participating in the labour in the workforce now effectively that 1 crore people not returning in the next 6-7 months is going to squeeze margins in these spaces and the only way to stop that is to do what cut down on advertising, administrative costs cut down on marketing costs freeze white collar wages because blue collar wages you have to pay because those are the people who have left and that's trouble for the middle class and when the middle class's income gets squeezed that is a problem for demand overall for the banking system, for loans for cars, for fast moving consumer goods shampoo, soaps, everything is going to slow down even more than what it did and I have said that governments will essentially give tax benefits to consuming groups and I don't see anything having been done the only thing we are seeing is actually a tax increase on fuel as the economy opens up thank you Arindu so much for talking to us thanks a lot Prashant that's all we have in this episode let's talk, we will be back on Monday with major news developments from the country until then keep watching NewsClick