The economic theory of the crisis exit model is being strengthened with new letters. We were familiar with a “V” -shaped recovery, a strong rebound after a recession, or a “U” -shaped recovery, a recovery after a more or less long-term stagnation. There was also a “W” or double rebound, as it was during the 1997 Asian crisis. Finally, there was an “L” or lack of post-shock recovery, as in the eastern countries of the time of post-communism. transition.
In the wake of the Covid-19 pandemic, economists seem to have emphasized the fifth “K” -shaped crisis exit profile that affects the Indian case, but the scope is more general. K, while the second part is in danger as the second leg.
What kind of content is it? From a pandemic-accelerated structural upheaval and a combination of sectors and social categories that are the big winners and conversely the big losers of these changes. In this context, the direction of public policy is decisive in the fight against the bud of social dualism.
Pandemic double shock
The Indian economy experienced one of the worst recessions in the world in the first year of the pandemic. Officially, it was -7.3%, but rather -8% to -10%.
With a growth rate of nearly 9% in 2021, it will be one of the strongest in the world. So, obviously, it’s a V-shaped recovery that looks a bit like France, rebounding to + 7% in 2021 and down by 8% in 2020. But this is not so easy. Behind this record is the first two years of smoothing hidden, which at best corresponds to stagnation.
In the case of India, smoothing since 2018 has established itself as a champion in emerging markets, with an average annual growth of only 3% in countries seeking acquisitions from China. However, if the annual growth rate is less than 5% or 6%, the average standard of living is actually, given the more greedy economic structural distortions in terms of spending constraints (such as moving from village to city). Is declining. Of life).
Even more worrisome: Behind this macroeconomic figure is a deep divergence movement between the peak of K, which actually rebounds strongly, and another peak that continues to plummet. Raghuram Rajan, a well-known Indian economist and former central bank governor, summarizes:
“There are some bright spots and some very dark spots in the Indian economy. The government needs to carefully target spending to avoid a K-shaped recovery.”
Increase in dualism
This divergence phenomenon is also seen on a global scale. Therefore, while the latest revision of the IMF forecast last January shows a rebound that is inversely proportional to the wealth of countries centered around the United States, Africa and least developed countries are far from recovering. The exit from the pandemic crisis has certainly worked, but reveals a literally explosive structural change with the advent of dualism due to several factors.
On the one hand, structural changes in certain economies that support service activities or new sectors related to ecological or health transitions. This is especially true for the IT services industry or biotechnology India, which has been really boosted by the new wave of outsourcing of remote IT services, especially thanks to the pharmaceutical and R & D industries. Large cities such as Bangalore, Pune, Gurgaon-Delhi and Hyderabad have become global centers for all multinational companies in these sectors.
However, the crisis also reveals and accelerates structural transformations of the economy, benefiting large groups with privileged relationships with countries and banks, making them more vulnerable to resistance, as well as public assistance. And can benefit from a wealth of funding. Adapt more quickly and take advantage of traditional opportunities in times of crisis when SMEs and employees are unable to reach their full potential.
The explosion of the Indian stock market, which has been accumulating records during the pandemic, is a good example of this. Similarly, in November 2021, the boss of the first Indian conglomerate, Mukesh Ambani, entered a club of over $ 100 billion in highly closed business property alongside Elon Musk (1).er), Bernard Arnault (3When) And just behind Warren Buffett.
Reliance Group, one of the main supporters of the Hindu nationalist government, has taken advantage of the crisis to increase acquisitions like regional leaders in lingerie sales, strengthen the network of thousands of convenience stores, and very much. Embarked on an ambitious wave. It is related to energy conversion, including two huge PV panel factories. The same is true of the surprising acquisition of air India, a state-owned company that was already difficult before the crisis, by Tata, the second Indian conglomerate spoiled by a generously funded government. This is true.
Dark spot on K’s second leg
Meanwhile, the situation in the traditional sector and working class continues to deteriorate, as seen in the textile and agricultural situation and the broader picture of car sales. The entire sector has been very deficit for two years, the luxury car segment has never been so prosperous, but as we approach the working class, we are entering a negative territory. This decline is one-third for motorcycles and small family-owned privileged carriers in India.
Similarly, unemployment and underemployment numbers are exploding. The official youth unemployment rate in Uttar Pradesh, India’s largest state, was reported to have surged to 23.2% by the end of 2021, from 5.9% in 2018 to 9.9% in 2019. Rail immigration, lifetime employment guarantees, and many in-kind benefits for families. According to World Bank data, India’s employment rate has fallen to 43% of the working-age population, compared to more than 85% in China and 53% in Bangladesh.
This “creative destruction” is unequally distributed between the destruction of many and the creation of a few, but it is in fact constant in economic history since the Industrial Revolution.
This recovery reading at K is evident in the latest publication of the study. People’s study on the Indian consumer economy (Price), a research firm in Bombay, this kind of data is also much more reliable than official statistics arriving 10 years late. The wealthiest 20% of Indian households (5)When In the quintile), real income increased by 39% between 2015 and 2021, and the apparent acceleration during the pandemic reduced middle class income by 9% and working class income by 53%. Did.
Public policy to support “creative destruction”
What should we do at this stage of structural change that weakens the weak and strengthens the strongest? This “creative destruction,” which certain liberal economists call it, is highly unequally distributed between the destruction of many and the creation of a few, and in fact is constant in economic history since the Industrial Revolution. Recall the crisis of the 1930s associated with the mass production explosion and the Second Industrial Revolution.
By playing with the range of available public policy measures, there is an alternative to laissez-faire liberal economic policy (in this case not really liberal). Raghuram Rajan suggests paying attention to budget leverage so as not to cause excessive inflation, as the Indian working class does not benefit from institutional procedures for indexing income. On the other hand, we need to act on the structure of spending, especially in support of mass employment of collective infrastructure, including health, and to schools, which are an essential place for the breeding of Indian caste. All engineers in this globalized economy in information technology and biotechnology.
The central government of Hindu nationalists, with its latest budget announced in early February, once again supported the business community through major highway construction that did not create jobs and was incompatible with climate change efforts. Some states don’t follow and aren’t the same way.
Thus, Rajan was appointed Chairman of the Economic Advisory Board in 2021 and advised Tamil Nadu Prime Minister MK Stalin on the economic reforms to be implemented to achieve “inclusive” growth. Alongside him, Esther Duflo, Alavind Subramanian, Amartya Sen’s longtime colleague Jean Drèze, and finally S. Narayan, the prestigious founder of Athena Infonomics, are liberal “creative destruction”. There is a fame of economists who are not serious about it in India.
Two major targets emerged from their last encounter. First of all, in response to the revival of guaranteed employment programs in rural areas (MNREGA), the central government has cut funds by a factor of five, especially underemployment affecting tens of millions of people. Expanded them to urban areas. Man.
Next, we will make major investments in the school system, from primary education to college and technical higher education. Higher and secondary education children, on the other hand, attend private education and IIT or IIM (Indian Institutes of Technology) type higher education institutions. The enrollment rate is only 1% of applicants.
The advantage of India’s federal system is that it puts almost half of its budget spending on the state. Therefore, we can immediately see the consequences of this type of alternative policy regarding the risk of getting out of K’s crisis.
Already, health and economic support policies in the face of a pandemic seem to have made a difference between southern and northern Hindi belt states such as Tamil Nadu and Kerala. This is detailed by the official unemployment rate figures. This is also seen at education level or infant mortality. It is 15.5% in Bihar, 5.3% in Tamil Nadu and 5% in Kerala. If officially only 3% in Uttar Pradesh, it is of power by enthusiastic Hindu nationalists who introduced real terrorist policies in early 2017, especially against Islamic people who form a quarter of the population. It is due to the grasp. More than one-third of young people. For the rest, the alternative is to be hired by the militia. Hindutva For khaki shirts and shorts, or for immigration.
The Indian Institute is a good example of the political and social impact of the famous exit from K’s crisis.