In an interview where he delivers a severe critique of the government’s response to the plight of the unorganised sector and, in particular, MSMEs after the devastation they faced in the second COVID-19 wave of April-June last year, one of India’s foremost economists, Professor Pronab Sen, says the government is “blind and/or unconcerned” about this crisis.
Sen said, although we don’t have a clear and accurate idea of the state of MSMEs and the unorganised sector, he believes it’s particularly worrying. Although Corporate India has done well and their profits have increased substantially, small MSMEs suffered during the second wave and the government’s failure to step in and implement measures that would keep them alive means that many or most will have disappeared. Sen calls this lack of response by the government during the second wave a failure to act.
Speaking about the overall state of the economy, one week before the budget is announced, Sen said it’s like the curate’s egg – good in parts and bad in parts.
He said India is witnessing K-shaped growth, where the corporate sector is the upper part of the alphabet and the unorganised sector, including MSMEs, which altogether represent 45% of GDP and around 85% of employment, are the lower part of the alphabet.
Speaking about the First Advance Estimates, released on January 7, Sen called them “a historic work of fiction”. He said the estimates have calculated the economy’s performance during the second half of 2021-2022 on an extrapolation of the first half. The problem with that is we don’t know how the economy will actually perform in the last six months of the year and, perhaps more importantly, we don’t have a good or clear idea of how the unorganised sector performed in the first half.
Sen accepted that the good news in the First Advance Estimates is agricultural growth of 3.9%, which is 7.6% more than the pre-pandemic year 2019-20, and manufacturing growth of 12.5%, which is 4.5% above pre-pandemic levels. However, he pointed out, the manufacturing figure is probably entirely based on big corporate manufacturing companies. It probably does not reflect what has happened to small manufacturers in the MSME sector who are not covered by corporate data. In a sense that, once again, underlines the K-shaped recovery the economy is experiencing.
The former chief statistician of India expressed great concern about private consumption, which is 55% of GDP and is still 2.9% below pre-pandemic levels. In fact, he pointed out that consumption in terms of per capita national income is probably 5% below pre-pandemic level. Along with the fact private investment, which is 33% of GDP, is only 2.5% above pre-pandemic levels, both these areas represent problems and reflect a collapse in demand.
Sen also expressed concern about services, which represent 57% of the economy, and the biggest chunk of which – trade, hotels, transport, communication – is 8.4% below pre-pandemic level. Trade, hotels, transport also account for 30.5% of employment.
Speaking about what the the budget next week must address, Sen identified aspects in particular. First, steps to encourage new enterprises to start up in the MSME sector and replace those that the government allowed to die by its inactivity last year. Second, government money for local projects like rural roads and waterways which, in turn, would help local contractors who, in turn, would provide employment.