The Coronavirus Recession and Its Implications
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The Coronavirus Recession and Its Implications Sudipto Mundle1 Published online: 16 September 2020 © Indian Society of Labour Economics 2020
1 Introduction This short note draws on my remarks at the IHD-ISLE-ILO conference on Implications of the COVID-19 Crisis for Labour and Employment, held during 8–9 June, 2020. These remarks primarily dealt with the Coronavirus triggered recession in the Indian economy and its implications.1
2 Declining Growth Prior To The Coronavirus Shock Growth had started declining in the Indian economy long before the world was struck by the Coronavirus shock. Viewed in a high-frequency metric, growth had declined in every quarter since 2017–2018 Q3. This was the persisting impact (hysteresis) of two earlier shocks, both policy-driven. The first was the demonetisation shock of November 2016. Even before the adverse impact of this shock had worked itself out, the economy was struck by a second major policy shock, namely the Goods and Services Tax (GST) roll out of July 2017. The GST is the most far reaching tax reform introduced since 1991 and the GST itself is an excellent destination oriented tax on expenditure. However, rolling out the tax without proper preparation, in particular, without a fully developed GSTN electronic tax information system and without an adequately trained cadre of tax officers to implement the new tax system, had a disastrous effect, especially on medium and small enterprises which lacked the capacity to comply with the heavy reporting and compliance requirements of the new GST. 1 These remarks were largely based on the NCAER Quarterly Review of the Economy, Vol.1 No.1, June 2020 ( henceforth QRE) which co-authored by me and a team that I lead.
Sudipto Mundle: The views presented are personal. * Sudipto Mundle [email protected] 1
Distinguished Fellow, National Council of Applied Economic Research, New Delhi, India
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Vol.:(0123456789) ISLE
S62
The Indian Journal of Labour Economics (2020) 63 (Suppl 1):S61–S65
Table 1 “No-Stimulus” Quarterly GVA Growth Assumptions, (%year-on- year) Sectors
Provisional CSO* 201920:Q4*
Agriculture
Base-case, QRE expert assumptions
2019–20* 202021:Q1
202021:Q2
202021:Q3
202021:Q4
5.9
4.0
3.0
3.0
3.0
Industry
(−)0.6
0.9
(−)54.2
(−)36.0
(−)18.0
0
3.0
Services
4.4
5.6
(−)16.3
(−)10.9
(−)5.4
0
GVA
3.1
3.9
(−)25.7
(−)16.7
(−)8.1
0.5
2020–21 3.0 (−)27.1 (−)8.2 (−)12.4
*Provisional Estimates released on May 29, 2020, by MoSPI Source: NCAER QRE Team and data from MoSPI; GVA = gross value added
Questions have been raised about why the adverse impact of these two policy induced shocks were not evident initially if indeed their effects were very strong. The impact was not evident initially because of a data infirmity in our national accounts estimates. Since we do not have annual estimates of output in the unorganised sector, the estimates are imputed based on a benchmark-blowup procedure. The assumption implicit in this procedure is that the growth rate of the organised sector is also
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