Covid-times Gyaan

How much of the 23.9% GDP growth fall for India can be attributed to Covid?

Note: This article was updated on 04 Sep 2020 (few days after being first published)

Below is what the BJP twitter handle tweeted on 22 Aug.

They used IMF’s forecast from April, even when IMF already had a negative forecast out in June.

Anyway, so now we know what really happened.

My question is: how much of this drop is from Covid and how much of it has to do with actions from Govt. (typically lockdown). One may say that the action of Govt. is a response to Covid – so they are one and the same thing – but are they? Imagine two scenarios:

  1. Govt. doesn’t do much – the economy still goes down – this is purely because of Covid
  2. Govt. does something – here both factors are at play

So for India, how much of the fall is from Covid and how much is from what Govt. did about it+Covid? Can one attempt to find that out?

To begin with, I think it makes sense to first look at some other countries that were impacted by Covid too, the “Govt. response” being different for each country.

GDP growth fell for all of them – as you can see in the below graph that I put together.

Other than 2020Q2 for India, other figures from OECD

India is the orange line. From the countries that I have chosen, India’s last quarterly growth in 2019 was lower only than China (grey). This was pre-Covid. Also, by growth I mean, when compared to the same quarter the year before.

In the next quarter, China’s GDP growth took the sharpest fall (understandably). Other countries GDP growth fell too, but not as much. In fact, India was doing okay in Jan-Feb-March 2020.

And then Covid spread in India.

In the Apr-May-June quarter, India’s growth fell really really bad. The decline in GDP growth is only better than Peru, a country that is one of the worst hit by Covid (just scroll up and look at the per million deaths for Peru). Peru’s GDP growth fell down by almost 30%.

China is the only country whose growth returned to positive in this quarter. Now you tell me, what explains the orange line (India) falling this bad even when other countries were hit by Covid much worse? Or…

has India’s GDP growth fallen this bad BECAUSE we have not done as bad as most of these other countries in terms of Covid spread?

But if this were the case, what explains Peru? Its cases went up AND its economy fell too – both drastically.

Think about it.

How do you think a GoI’s propaganda channel is spinning the news? Just listen to Arnab describe this “global phenomena”. He literally quotes random numbers for countries like USA and Canada. Is he lying on national TV or am I missing something?

At one point, #GDPTruth was trending at no. 5 on Twitter. Most of them using this hashtag seemed to be paid propagandists whose only job looked like passing this off by calling it a “global phenomena”!

Is comparing India with US / Europe like comparing apples and oranges?

Responding to an earlier draft of this blog, some friends seemed to suggest so.

I agree. No two countries are the same. No two fruits are the same. Not even two apples are same for that matter! Comparison after all is just one way of looking at things – because looking at something in isolation is even more meaningless, no?

If you think about it, the figure of -23.9% itself is a comparison! It compares 2020 quarter 2 GDP with 2019 quarter 2 GDP. But 2020 is not like 2019, so why compare? Everything is apples and oranges – from Global Ease of Doing business rankings to GDP forecasts!

Some also responded to my first draft saying this was expected – we were in lockdown for most of the quarter in question – people were saving money (so drastic drop in demand) – factories couldn’t operate (so supply drop).

Nice. Let me quote Daniel Kahneman from Chapter 19 of his book Thinking Fast & Slow (the chapter is titled “the illusion of understanding”).

The mind that makes up narratives about the past is a sense-making organ. When an unpredicted event occurs, we immediately adjust our view of the world to accommodate the surprise.

Learning from surprises is a reasonable thing to do, but it can have some dangerous consequences.

A general limitation of the human mind is its imperfect ability to reconstruct past states of knowledge, or beliefs that have changed. Once you adopt a new view of the world (or any part of it), you immediately lost much of your ability to recall what you used to believe before your mind changed.

Daniel Kahneman, Thinking Fast and Slow

BJP now has a nice explainer video.

At least in this video (if you watch from 3.30) BJP admits that IMF changed its 1.1% GDP projection for India to -4.5% in June (unlike my first quoted tweet from 22 Aug where they conveniently ignored this).

That aside, I think the above video is a fair attempt to explain the GDP numbers and we will have to wait till Nov to see how much we recover in Jul-Aug-Sep.

The worst case scenario would be when GDP growth continues to be low and the cases / deaths continue to rise and get as bad as the other countries. Because then, paise bhi gaye or jaan bhi?

Leave a Reply

Your email address will not be published. Required fields are marked *