Economy picks up but it has a long way to go

As the third quarter of the 2021-22 financial

year draws to a close, India’s economy is showing signs of recovery after the hard hit it took during the extremely harsh Covid-19 lockdown. It had just begun to slide down after being the world’s fastest growing economy when the pandemic struck. The nationwide lockdown, imposed on four hours’ notice without adequate preparations, brought it to a grinding halt. Businesses closed down and millions were rendered jobless overnight.

Official data later showed the economy had shrunk by about 24.4 per cent in just one quarter.

It was the first time the Indian economy had contracted since the early days of Independence. In the first quarter of the 2021-22 financial year, the government reported a GDP growth of 20.1 per cent. Growth in the second quarter was 8.4 per cent.

Impressive as these figures are, there is no reason to gloat over them. Quarterly GDP growth rates are worked out with the corresponding quarter of the previous year as the base. GDP had registered negative growth in both the first and second quarters of 2020-21.

But there certainly is reason to rejoice as the first and second quarter figures of the current year indicate that the economy is again growing.  The World Bank has estimated that during 2021-22  India’s GDP may register a growth of 8.3 per cent.

Finance Minister Nirmala Sitharaman has expressed happiness over the recovery. “At this stage we want to have very positive signs from all segments so that mutually they create this thing called sentiment. If sentiment becomes positive, it creates a multiplier effect,” she said in an interview.

She viewed the current growth rate as proof that the government’s policy of selective investment was yielding results. But not everybody is satisfied with the growth rate.

Spokesmen of various sectors of the economy have been calling for more stimulus packages. Several economists are urging the government to do more to help people in distress. While crude prices were falling in recent months, the government had allowed oil companies to raise retail prices continuously.

Since Central and state levies constitute more than half of the retail prices of fuels, governments are major beneficiaries of the price rise.  Some economists have suggested that the Centre must use its windfall gains to help the poor who were hit by the crash of the economy.

But Ms Sitharaman is credited with the view that the government has done all it could in this year’s budget and the schemes announced later with focus on the healthcare and tourism sectors.

How big was the damage caused by the pandemic? GDP figures tell us only a part of the story. We have to look elsewhere to get the rest of the story.

Per capita income dropped to Rs99,694 in 2020-’21 from Rs1,00,268 in 2017-18. Per capita GDP is now what it was in 2016-17, the year in which the economy started sliding after ruling high for a few years.

In March 2020 the Centre for Monitoring Indian Economy estimated that the lockdown had resulted in the loss of about 5 million jobs. A more recent study estimate put job loss at as high as 25.3 million.

Nobel Prize winning economist Abhijit Banerjee sought to put the economic situation in the right perspective. He pointed out that GDP has still not reached the 2019 level.

Addressing the Gujarat University’s convocation by video from his base in the US, he said there was growing distress in the Indian economy. Based on impressions gathered by him during a recent visit to rural Bengal, Banerjee said “people are in extreme pain and their small aspirations are becoming even smaller”.

The economy, he added, was still well below 2019 levels. “We don’t know how much below, but it is substantially below. And I am not blaming anybody. I am just saying.”  The government must take note of Banerjee’s reference to the pain of the people. India has one of the highest levels of inequality. The fast economic growth of the pre-Covid period was driven by high domestic consumption. Concrete steps to lift the millions whom the lockdown pushed had pushed below the poverty line must be a necessary part of the efforts to raise economic growth to the earlier levels.