 Hello, let's talk about the state of the economy. Over the past few months, we saw India's economy tanking during the lockdown. Unemployment sold at 27% industrial production declined as did consumption. Every major indicator was in the red, except for occasionally the stock market, which perhaps showed that it was not really a good indicator of the economy's health. The month of June saw a bit of a revival though, and a host of experts, especially the pro-government variety, were quick to proclaim that the tide had turned. However, July does not seem to confirm that this is an optimistic estimate. We talked to journalists on India Chakravarti and various indicators of the economy's health and what options the government has and what it should be doing. Thank you Anandju for joining us. So another Independence Day coming up and a lot of reflection on the state of the country, the state of the economy, etc. So we have been talking about the economy over the past few months. There was obviously a very steep fall initially, some signs of recovery, but it looks like, again, the situation does not look so good. So we'll talk a bit about this. Right, so in June it looked like that the recovery is taking place and by July we should be back to, you know, pre-COVID-19 lockdown situation, but that doesn't look like it's happening because the recovery that we saw in June seems to be leading on to some sort of a slump in July. And most indicators, what are called high-frequency indicators, which are released every month or every two months or even every week, those kind of indicators tell us that the July recovery has slowed down quite sharp. Absolutely. So could you give us an outline of what are the key indicators that show that this is happening? So first of all, let's look at GST. Now, you know, the traditional run rate for GST last year was about, what the government has wanted is about 1 lakh crore every month, right? We know that that has not been achieved in many months because the slowdown is actually not caused by coronavirus. It's basically caused because of the general misangling of the economy and economic policies followed by this government and previous governments as well. So GST collections dropped sharply. We know in April and May they recovered, but in June it had gone up to close to about 91,000 crore, pretty close to that 1 lakh mark, right? In July, it has dropped again to about 87.4,000 crores. So again, we're seeing a drop in GST, not just year on year, compared to last July, we're down more than 14 percent. But even compared to June, we're down 3.5 percent. So the June recovery is clear, was some sort of a pent up demand. Things were completely shut in April and most of May. So June, people went down and bought. So GST is a very clear sign, first of all. Then let's look at some other data, for instance, something like freight carriage. How much is the railways carrying on a daily basis? And if we look at June average daily carriage, the freight being carried was about 3.12 million tonnes. That has dropped to 3.07 million tonnes in July. Now you could say that in monsoon, certain kinds of freight does go down. That's true, but given that the lockdown was opening up in most places, it was ending in most places, that freight rate should have gone up, because the average is still not to the levels where it is even in June. So that's why. Now look at consumption of petrol and diesel. And our petrol and diesel, we saw that it had all recovered quite significantly. Of course, it was still slow because obviously there was a general slowdown. In June, we saw petrol, diesel overall fuel consumption go to about 16.25 million tonnes. Now in July, that has dropped again. It's gone to about 15.67 million tonnes. So we are seeing even that consumption drop by nearly 4%. So this tells you that the economy is again contracting. Finally, let's take something which most brokerages or economists attached to institutions look at. Something called the PMI. Now the PMI is known as the Purchasing Managers Index. It tells you, and it's divided into services and manufacturing. I'm just looking at manufacturing. It tells you that what is the purchasing manager, a person who procures things, sales and stuff like that. What is their anticipation? And what are they doing right now? So the PMI, when the index is above 50, the assumption is that the economy is expanding. And when the PMI goes below 50, assumption is that it is contracted. We know that in April, I think the PMI went to somewhere around 29 or something like that. And that is probably the lowest since this PMI has been recorded. And that was expected. Lockdown is going to do that. May it recovered a bit. And by June, it had gone back to about 47.2, which is close to 50. So one would have imagined and many commentators thought that, okay, June, there's been such a recovery by July, they should cross 50 again. So we'll again go into an expansion mode. Now remember that Prashant, that growth is a necessary part of any economy, which is already developing and is largely poor. And also where population goes up. Even if you have to match the 1% annual population growth, then just to match per capita supply of goods, that each person on an average should get the same amount of goods that they got last year. Growth has to be 1%, right? So there has to be in a country like ours, PMI should be above 50, always just to keep things at where they were last year. But in July, the PMI actually dropped. It dropped to 46. So it tells you that there is a sense that there is a sense across the board that the economy has again started contracting in July. And the final indicator I'll take is something from the RBI, the RBI's surveys, the household surveys it does. And this is not really a sign of contraction, but a sign of what people expect is going to happen. And that has an impact on how they're going to spend, what they're going to do, right? And one of those is the sense of net sense of unemployment. Now, unemployment levels have actually gone down quite sharply as CMI's weekly data tells us. It's almost come back to where it was unemployment, not employment level. These are two different things, but unemployment has come back to more or less the March level. Employment is still lower. We think I think about two odd crore people are still out of work. Those are looking for work. But if you look at what households assume is going to happen, the RBI's surveys show that it's a negative 69%. 69% of households in the survey responded and thought that unemployment is going to go up. So this gives you a sense of uncertainty. We know that mutual funds have seen consecutive months of redemption. Again, there's been a net outflow of mutual funds. That means that people are not certain what's going to happen. They're consuming what PF withdrawals have gone up sharply. So this tells you that there is a sense overall that things are going to contract and when that happens, then demand contracts. And it's almost a vicious cycle. Absolutely. So in this context, has the government acknowledged any of this at all? Or has there been any sign from the government that there is some attempt at thinking through this process at giving some direction to this process in the first place? I think not only has the government not acknowledged it, the only backhanded acknowledgement you've got is from Rajanath Singh, who says that if COVID-19 had not happened, India would have become the third largest economy in the world in another five to six years or some time frame that is given. So in a sense, that's a backhanded acknowledgement that things are not all right in the economy. The government still claims and the news media, mainstream media still continues to project that if it has given 20 lakh, 21 lakh per rose of stimulus. We know that the actual amount is probably 10% of that or even less. Now, what we're seeing is yesterday, we know that the Prime Minister came out with this tax transparency thing. Now, it's all very well to be transparent about taxes, but people have to earn to be able to pay taxes. This is was the time, if you go by conventional now, because this government is not going to think outside conventional now, they should have deducted taxes. They should have given a media tax break to the middle class, which is already facing a contraction and income. They should have reduced the prices by reducing taxes on fuel, reduced GST. Of course, the question there would be, how will the government spend if it's going to reduce taxes? Increase the fiscal deficit. In normal circumstances, I would say that tax rates for the higher income groups need to go up. But frankly, this is not a normal circumstance, because even higher income groups are not spending. And when they don't spend, then this chunk of the economy is not going to see any demand. And unfortunately, over a 20, 30-year period, if this is what you made out of economy, you can't suddenly switch it off. So you're stuck with it in a certain sense. So transparency, and if you look at it closer, then you'll see actually, this transparency is all about not being sent a notice by a babu who knows you. Right? However, there is a large number of things which have been added now. So if you spend more than 20,000, I think in a restaurant or a hotel, it will automatically go into your returns. If you spend more than a lakh on school fees or college fees, it will automatically go into your returns. The threshold has been lowered. And for each of them, there'll be a notice automatically served to you, I'm assuming, because you will be told and you'll have to show that you've either done that spending or not done it, or you'd accept it. So this is not really simplified taxes to be there. So in a sense where the government needed to do, first of all, if it was going to stay within the conventional norms, increase fiscal deficits, spend more, and cut taxes at the same time. However, there are other ways to look at it. And I don't think the government is even looking at it from that other way. So let me just talk about that quickly before we run out of time. One can argue that essentially this is not an organic crisis. It's not as if the crisis came out of globally. It's not as if the crisis came out of the economic system itself. It was an external thing. Yes, you could say that a different economic system might have dealt with it differently. As you've seen in some countries which are more socialist-oriented where inequality is less, where it has dealt with it better than places which have high inequality. However, given that this was the situation, essentially the government should have provided people with basic conditions of existence as long as they have to live inside their homes. All they have to do is ensure that people stay inside their homes. Now, what do you have to do? You have to ensure they get food, they get medicines. Maybe they get a certain amount of cash which is required to spend on things which you cannot anticipate. Everything else has to be suspended. There is no reason why people have to pay rent because if people don't get employed, if we can say that, oh, in a crisis like this, it is obvious that people will lose their jobs and they will not get salary. Then it is equally obvious that returns to capital of any kind, whether it is profit, interest, rent, has to be stopped as well. So there should have been no rent payment, no interest go out, and there should have been absolutely no reason to ensure that people make profits. Because as long as the government was able to spend to give you food, medicines, ensure that you have shelter, ensure that you have basic amenities, then you just have to deal with this period as everyone is equal. That, of course, is utopian. It's not going to happen, we know. So given that India is essentially an extremely unequal country and inequalities fostered by the system, I would say even then, the government needs to spend more and cut taxes because otherwise, we are not coming out of this morass any time soon. Right, so at the most what we'll see is minor recoveries followed by another slump. It becomes a continuous up and down process. Yeah, because we know this government has completely failed when it comes to dealing with the virus itself. And in terms of daily number of cases, we are probably now number one across the world. And we have no way to know what the deaths are because what is the death registration rate in India in any case, right? So we don't know how people are dying, what is happening, whether they've been recognized as COVID deaths or perhaps being told to die. So there's no way to know this. Thank you so much for talking to us. Thank you, Prashant. That's all we have time for today. We'll be back on Monday with major news developments from the country. Until then, keep watching NewsClick.