A surreal discourse on India’s GDP crisis

The Indian economy contracted by 23.9 per cent in Q1 of FY21. While the news was expected, confirmation of the expectation led to the usual seismic shocks through the econ-scape of the country. The Government lost no time in declaring that the numbers would have been worse if not for their intervention. A super-steep V-shaped recovery was on its way! The Opposition was in top form, calling the Government ineffective and uncaring. The media simply exploded with anchors getting right into the debate of the shrinking GDP. So loud was the debate on news channels that the vibrations reached the heavens, disturbing the geniuses who were practising their art in peace.

The tragic hero of Indian cinema, Guru Dutt, sat up with a start. He had been following the story of the Kaagaz ke Phool, those ₹20-lakh-crore, rather with interest. “Oh no, don’t call it an Act of God, lady! After spending all that money, you get a 23.9 per cent contraction? The irony of it! We went into the severest lockdowns, overshot fiscal deficit targets, endured inflation to do what? To experience a GDP contraction together with becoming one of the biggest Covid hotspots in the world? Ah, humne toh bas kaliyaan maangi, kaatonka haar mila!”

“Wah wah, Dutt Miya, very well put!”, said Mirza Ghalib. “I would have put it a little differently, of course. One of the worst-performing major economies — Bade be-aabru hokar tere kooche se ham nikle! India’sfiscal deficit in Q1 stands at ₹8.2-lakh crore, which is 103 per cent of the fiscal deficit budgeted for FY21. The Finance Minister claims that had the Government not quickly ramped up its spending, the growth rate contraction would be much worse. What a Ghalib kind of a thought — ke yoon hota toh kya hota!”

“Hmmm, the FM’s fiscal math is going awry. But, although I am a mathematician, I think she will benefit reading more of my story books rather than my maths books”, said Lewis Caroll. “I must tell the Indian FM to read Alice in Wonderland. In that book, she will get all the stuff she needs — ‘My dear, here we must run as fast as we can, just to stay in place. And if you wish to go anywhere, you must run twice as fast as that!’ What would say to that, Acharya?”

No, he was not referring to Viral Acharya, but Shankaracharya, who had come by to listen in to the discussions. “Brahman satyam, Covid mithya!” said the Acharya, causing a general furore in the gallery of the intelligentsia. “Really? Covid is an illusion, eh? How do you then explain the Covid research being done by the World Health Organization?” “WHO mithya, research api mithya! Don’t believe me?” asked the Acharya gently. “Ask Trump!”

That pushed John Maynard Keynes into action. American Presidents usually do. “Oh, when will Trump learn?”, he asked in despair. “In the long run, we are all dead. Haven’t I said that tirelessly? But the fellow is making sure that people will be dead in the short run itself! Oh, why can’t these people show some common sense?”

Right on cue, George Bernard Shaw started, “The Scotch and the Irish leave you close to tears. Well, in America, they haven’t used it for years!”

“You are damn right on that one, Shaw! Coming to the Indian FM, she needs to go Keynesian. Announcing a ₹20-lakh-crore package, and then spending only ₹2-lakh crore. I never heard of such stuff! The multiplier associated with Government capital spending is what she needs to get going on. Even if there is limited leeway in terms of how much one can spend, she can definitely reflect on the composition of spending. Get that infrastructure pipeline going!” Keynes was in sublime English form.

“Perhaps, two roads diverged in a wood”, began Robert Frost dreamily. “They took the one less travelled by,” he said when Keynes cut in cleverly. “Yes, but has it made all the difference?”

“Perhaps, they are also thinking of the long run. Mr Keynes! Some of us do. It is also, errr, called far-sightedness, though some people like to call it monetarism”, said Milton Friedman in a dangerously silky tone. “Whilst advocating higher Government spendings, we tend to condone higher monetisation. Sure, it is indirect monetisation, but I have always maintained that policy needs to be judged by the results, and not by the intentions! Overly large fiscal deficits will imply loss of control over monetary policy, leading to price fluctuations in the long run. After all, inflation is always and everywhere a monetary phenomenon!”

“Absolutely!”, agreed Karl Otto Poehl, the Bundesbank monetarist. “Inflation is like toothpaste. Once it’s out, you can hardly get it back in the tube again. Be wary of too many of those notes!”

“Notes! Ah, music is not in the notes, but in the silence between!” sighed Mozart, prompting an icy silence between the economists. The bespectacled wise old man shifted, suddenly restless. What should I promise the bearer of my note, he seemed to be thinking.

The writer is a Pune-based economist