Q2 GDP Shows Pre-Pandemic Growth, But It is Not Uniform Though!

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  • As we are aware, the Indian economy is trudging along the path to recovery from the mauling it received courtesy of the marauding pandemic is stating the obvious. As the country hopes to scale up overall development to realize its stated objective of reaching $ five trillion economies, the positives coming out of the second quarter GDP should send a definite sigh of relief to all concerned. However, the moot point to ponder over here is whether the growth being witnessed is organic and all-encompassing, or is it constrained by a few crucial sectors yet to reach pre-pandemic levels?

PC: Shivani Khanna

  • The answer is mixed looking into the statistics published on this front. Note that India’s GDP grew 8.4% in the July-September quarter, higher than both RBI’s estimate and consensus estimates in polls. On scrutiny of absolute numbers in detail present a mixed picture though. The GDP for the quarter was Rs. 35.73 lakh crore, higher by 0.33% than the corresponding period’s GDP in 2019-20. Prima facie it signals the economy is back to its pre-Covid level denoting that India has been able to bounce back in two years from the disastrous consequences. Most worryingly, the informal sector has not yet recovered looking at the private consumption in July-September 2021 at Rs. 19.48 lakh crore, 3.5% lower than its pre-Covid level in 2019.
  • As can be seen, recovery, therefore, is uneven. Of course, the bright spots in the supply side of the economy during the quarter were the agriculture, manufacturing, mining, and electricity sectors. Hearteningly, there is also a modest improvement in capital expenditure highlighting the thrust on strengthening crucial infrastructure vertical. On the downside, construction, services, particularly trade and hotels, are not back to pre-Covid levels in absolute terms. Needless to mention, contact-intensive services sectors are still struggling, a segment that accounts for a large number of informal jobs, which is acting as a drag on aggregate private consumption.

PC: Ramkishen Rajan

  • Interesting to note that nominal GDP for the quarter grew 17.5%, 9.1 percentage points higher than real GDP translating into high tax revenue collection for the Government of India and States but will harm the struggling informal sector. Against this backdrop, FMCG data for the quarter put out by Nielsen showed that there was a year-on-year decline in volumes sold even though it grew in value terms. So, what does it entail for the Government authorities in the coming months to spruce up the economy through policy decisions? In absolute terms, the economy has recovered to its pre-pandemic level, with agriculture contributing the most.
  • As can be deduced, the recovery is both fragile and uneven for comfort. Given the uncertainty induced by the discovery of a high-infectivity new coronavirus variant, the Union Government must force the pace on vaccination that covers the majority of the eligible adult population. Apart from this, it has to keep open the options of more sector-specific fiscal measures as a large swathe of the economy is yet to recover. The country has faced humongous challenges from several directions over the last 19 months and definitely can emerge less scathed in the days ahead too.