Post Pandemic Boom — Will India Rise from the Ashes?
Historically each recession is followed by a boom. As the productive forces of the economy recover, they usually cross over the previous threshold of production and expand considerably. Keeping this in mind people are theorising a similar boom will take place in India post covid-19. Is this really the case? To find out, let’s take a closer look at the historic great depression of the 1930s.
During the great depression of the 1930s, production contracted all around the world and economies struggled to sustain themselves. Thousands of people were laid off — which only hurt the GDP further as consumption fell off. In the midst of all of this John Maynard Keynes developed his theories of economics.
According to Keynes the fault lay in the lack of government intervention in the markets. Economic policy at the time suggested that the state intervene as little as possible in the markets and let the ‘invisible hand’ as theorised by Smith, organise production. However with the economy contracting, no private investment was coming forth. Instead private investment was shrinking — laying off more and more people and closing down more and more production plants.
In this context, the government could provide a boost to aggregate demand. By investing in the place of private players, it could stimulate demand and create jobs (thus reviving consumption as well). This is what Keynes suggested and the adoption of Keynesian policies eventually led to a recovery in the following years.
In India it would seem that the only reason the economy has contracted is covid-19. Nothing could be further from the truth. While the economy has no doubt suffered greatly under covid-19, it has also suffered greatly under the current administration.
As things stand, private investment is dropping off and unemployment is the highest it’s been in 40 years. One look at this phenomenon and the parallels to the great depression become quite clear. And yet, the adoption of Keynesian policies has so far eluded the government.
The reason behind this is that under neo-liberal economic policies, States which spend very little are preferred by multinational finance. Then in order to remain a favourable investment destination for investors abroad, the State is following a policy of no intervention. In other words, it is trying to revive private investment rather than make the investment itself.
Whether it will fail or succeed remains to be seen but seeing the impact of covid-19 on the world economy, reliance on external support is becoming an increasingly riskier option. It would be prudent for the State to take this opportunity to step in and steady the boat. The post-pandemic boom, in other words, is by no means assured.