Zero Dark 2020

The day Mahendra Singh Dhoni and his boys lifted the T20 world cup in September 2007, it was a defining moment not only for the Indian cricket but for a generation. Indian economy was truly booming (2003 to 2007 – for five consecutive years, GDP grew at a rate of around 8%) and new enterprises in IT, telecom, pharma and other sectors were out to conquer the world. Since the Y2K crisis of the late 1990s, Indian professionals earned global recognition. Shining new airports, signature flyovers and swanky malls altered our city-scape and ushered in a new consumer culture. For those too young to remember the 1983 and grew up watching humiliating defeats to Australia, England and especially to Pakistan, Saurav Ganguly and then Dhoni’s boys represented a new era. As stock markets continued to soar (Sensex crossed the 20000-mark for the first time in 2007) and there were regular predictions of India soon becoming a global economic powerhouse, one of the newspaper headlines screamed next day – India World Leader 2020!!

A friend recently reminded me that when we completed our graduation in mid/late 1990s, there was not even an iota of doubt in our minds that we would do well in life. Whichever career you chose, generally there was such an atmosphere of optimism all around! The world was ready to welcome middle class India like never before. In 2003, Planning Commission unveiled Vision 2020, a document prepared under the leadership of APJ Abdul Kalam. The book he subsequently published was almost a compulsory reading for nearly a decade and we all truly believed in that promise – India’s destiny to become an economic superpower and ensure all round development for her entire population.

Instead 2020 tuned out to be our Annus Horribilis and that precious dream now lies absolutely shattered. This year for the first time in four decades GDP will contract. Zero growth is truly an unprecedented scenario in this country of 1.3 billion. It also appears that 10 to 20 crore jobs/livelihoods will be lost and an alarmingly large number of Indian businesses will go bankrupt. Even before this pandemic struck, economy was in a serious structural crisis with falling exports, decline in domestic demand and above all dwindling employment opportunities. But now this lockdown completely flattens the economy. With this the virtuous cycle that started on 24^th July 1991 comes to an abrupt but definite end.

In 1991, Gulf War had sent oil prices soaring. With hardly any foreign reserves, India was on the verge of a sovereign default. Prudent fiscal management since 1991 and a large forex deposit, however, ensures that the government does not face any such crisis today despite a raging global recession far worse than 1991. But the government does not command this economy any more. It’s the private sector and household consumption that drive this large economy (in 1991, India’s GDP was a paltry $320 billion, today it stands at $2.7 trillion). Battered by this unprecedented lockdown most households and corporates now face a serious risk of bankruptcy.

To be honest, there were deep fissures in our growth story. Politically, 1991 was essentially reform unleashed under duress. All political parties subsequently refused to extend reform more meaningfully to other areas, including politics itself. There was steadfast refusal to invest in public health, education and agriculture. A substantial segment, perhaps as high as 60% of those who are above poverty line remained deeply vulnerable in the absence of any social security/safety net. Creaking infrastructure and unpredictable government policy ensured that there was no rapid industrialization. For years now, successive governments have failed to address the banking mess and power sector woes.

Initially, the political class was ready to give up their discretionary power and create new professional regulators. Over time, not only they refused to move ahead with more professionalization but even the robustness of the earlier institutions have eroded. The most worrying is of course a precipitous decline in competition – state monopoly has withered away but today in many critical areas of Indian economy there are only 2/3 players left. Telecom, once a great sunrise sector, is today a prime example of this unfortunate trend. In last decade or so, we have hardly seen a single new enterprise comparable with Infosys or Sun Pharma or Bharti.

And who pays for it? If the state does not invest in infrastructure or public health, citizens suffer. When competition shrinks, consumers are forced to pay higher prices for poor products and shoddy services. The lower you are in the pyramid, more you stand to lose.

Any crisis of this magnitude – from medieval Plagues to more recent World Wars – also presents great opportunities. In fact, India’s response in 1991 itself is a great example of that. But whether an economy is able to take advantage of a crisis or not, that depends largely on policy response. Probably our greatest weakness today lies therein. The stellar team that was responsible for drafting the economic policy in 1991 was mostly around in 2008 (Manmohan Singh, P Chidambaram, Montek Singh Ahluwalia and C Rangarajan) and they did a commendable job of saving India from recession in 2008 (as a recent book shows, Indian economy was dealt a more fatal blow by the Mumbai terror attacks in the same year, which led to the removal of Chidambaram from the Finance Ministry. Pranab Mukherjee, a politician with pre-reform mindset took his place and failed to sustain the momentum). There is a whole host of globally acclaimed Indian economists today but the government does not seem to be interested to profit from their knowledge. And neither the lessons of liberalization nor the spirit of competition has anyway affected the bureaucracy.

Blue sky, nearly empty neighbourhoods, families huddling together in front of television to watch Ramayan/Mahabharat, sharing home cooked Maggi instead of Domino’s Pizza – this idyllic picture of locked down India brought back memories of our childhood in late 1980s. Except that we could not go out for cricket/walk. Except that the apartment blocks where we are cocooned today do not look anything like government/PSU/railway colonies or university campuses some of us were privileged to grow up in. Our parents aspired to build a modest house before their retirement with savings of their lifetime. A lucky guy got posted/sent on tour abroad and brought sneakers/jeans/Walkman for the youngsters. We spent half the month with a landline lying dead (and called girlfriends in another city through astronomically priced STD calls in tiny booths). Power invariably went off during an important cricket match or Chitrahaar, during hottest summer afternoon or midnight. I wrote about it almost a decade back (http://thetimeriver.blogspot.com/2011/07/bis-sal-baad.html), but honestly today hooked to my mobile, used to the convenience of net banking/Makemytrip/Amazon Prime/BigBasket/Zomato, even I find it difficult to imagine that life.

We have entered a dark tunnel. We will eventually come out of it but it would be a very different world. 8% plus growth will not come back on a sustainable basis for a very long time. And now the world would be far less globalized, deep recession always breeds insularity and authoritarianism (Great Depression of 1929 led to the rise of Hitler and Mussolini). By 2030, India’s demographic dividend will be largely over. This way, it seems, India has fallen into that dreaded Middle Income Trap, from where hardly any economy has ever recovered. Still, most of our gains in middle class India are unlikely to disappear. But even our lot will struggle with a serious job squeeze, stagnant/falling income and asset erosion. It would be much worse for those entering the job market now. Eventually perhaps both the demand for formal education and supply of steady jobs would decline. Along with landline telephones, morning newspapers, lifelong pensions, sari-clad mothers/teachers, a long list of things/habits/practices are about to go out of our lives.

Living through a period of momentous historical event is often a traumatic experience. Today we might find the French Revolution (1789-99) a great inspiration or watching a Second World War (1939-1945) movie very exciting but those, who lived through those cataclysmic events had suffered unbearable pain and deprivation.

For decades now, we have not seen absolute poverty rising in this poor country. In fact, lifting millions out of abject poverty has been one of the most important gains of 30 years of liberalization. This picture, no doubt could have been far better but even this achievement largely melts away now. Assuming a population of 15-20 crores below official poverty line at the beginning of 2020, by the end of this year itself, perhaps this number would double to 40-50 crores. This will be an absolute catastrophe and, no doubt, will have very serious socio-economic ramifications, especially in poorer and more populous Northern states.

Since the late 1990s and till almost recently, a large proportion of Indians have truly believed that they can significantly improve their own economic prospects. Curtain comes down on that generation of hope. They would now be happy merely to latch on to the gains of last two decades. And it would be an uphill battle for those who are now going to arrive at the scene. We, globalized children of 1991, scattered from New York to New Delhi, Boston to Bangalore, would look back at these glorious decades now with a tinge of nostalgia and hope that those golden years come back in our life time.