Economy in Modi 2.0: A year best forgotten as things turn bad to worse

Most parameters have turned from bad to worse in the first year of the Narendra Modi government 2.0. 

Even before the lockdown, the economy was on the downhill despite the Centre announcing huge corporation tax cuts. It grew by just 4.2 per cent in FY20, not only the lowest under Modi’s rule, but also lower than 5.5 per cent recorded in FY13, when policy paralysis gripped the economy. 

The lockdown may deal a crushing blow, with analysts predicting a contraction of 5-7 per cent in the GDP this year. Already, industrial production and exports are at record lows. 

Illustration: Binay Sinha

Joblessness hovered between 7 per cent and 8 per cent till February, but surged to record levels after the lockdown. The Centre’s fiscal deficit has widened to 4.6 per cent of GDP in FY20, compared to the original target of 3 per cent. 

The Sensex has been down 18.6 per cent since May 30, 2019. Depressed crude oil prices and lack of demand had a positive effect on the current account deficit. It was near-zero per cent of GDP in the third quarter of FY20. 

Fuel and retail inflation have declined because of lower oil prices and lack of demand. However, there is uncertainty on food inflation. The fall in bond yields and interest rates is also a silver lining. 

However, since banks haven't fully passed on the gains to customers, and India Inc is witnessing low utilisation levels, many companies are faced with losses due to poor operating leverage.