GDP numbers: Much ado about very little

The latest GDP numbers confirm our worst fear that economic recovery to pre-pandemic levels is nowhere close in sight

The latest gross domestic product (GDP) numbers have been released. The government and ruling party members are rejoicing. While relieved that things are improving, the common people are not impressed. Here's why: the magnitude of India's economy, its GDP in April-June 2021, is lower than its GDP for the same period in 2018. Loud claims of recovery cannot hide the economic devastation.

The scars from seven years of economic mismanagement and the mishandling of the pandemic are here to stay. The government can choose to try to indulge in its usual spin or actually confront the challenges. Consider the following table:

Item	Value in April-June Quarter (in Rs. lakh crore)
	2018-19	2021-22
Gross Domestic Product	33.84	32.38
Private Consumption	18.82	17.84
Investment (Gross Fixed Capital Formation)	10.89	10.22
Manufacturing	5.64	5.43
Construction	2.51	2.21
Trade, Hotels, Transport, Communications, and Broadcast Services	6.26	4.63

India has drastically fallen behind. On all major heads, we are far behind the levels in 2018-19. This regression has acute human costs. Lakhs of families have fallen into poverty as joblessness has risen to unsustainable levels. India's middle class has contracted. Malnutrition has worsened. The economic prospects of an entire generation are at risk.

Consumption and investment are the most significant contributors to GDP. Where does India stand on both? Consumption is about 12 per cent behind the 2019-20 (pre-pandemic) levels; investment is about 17 per cent behind. How long will it take for us to get back to pre-pandemic levels? Who will be held accountable for the lost time? The government cannot forever hide behind the excuse of the pandemic.

India had been suffering from sluggish demand well before Covid-19 impacted our economy. In 2019, we read how demand had collapsed, whether for a Rs 5 biscuit packet or automobiles. The pandemic made an already concerning situation worse. And the government played an inglorious role.

Read | Indian economy, slammed by Covid-19, needs its lost growth

Faced with an inevitable disruption due to the pandemic, countries announced fiscal stimulus measures with substantial outlays. India offered an economic package of barely 1 per cent of its yearly GDP (the Atmanirbhar Bharat package) while claiming it to be worth ten times as much-a boast that was quickly exposed. The government put its weight behind supply-side measures such as offering more loans. With falling

demand, fewer businesses were keen to add to their liabilities. The stated logic behind the stingy stimulus was that the government wanted to open its purse strings when the fund utilisation would be optimal. That optimal moment has not arrived even as quarterly GDP has fallen to below 2018 levels.

A well-targeted fiscal stimulus would have addressed both consumption and investment challenges. A direct income transfer scheme (such as NYAY) and support to MSMEs and those in the informal sector would have raised consumption and investments and kept small businesses alive.

When you start for a very low base (the GDP had shrunk 24 per cent a year earlier), any positive momentum appears to be substantial. The low base of 2021-22 has made the GDP growth rate look like a historical high. Yet, across the country, despondency is writ large. The last round of the Reserve Bank of India's Consumer Confidence Survey, conducted in the

last week of June and the first week of July, paints a distressing picture. More than 60 per cent of respondents believe that the economic situation will not improve by next year. Negative perceptions impact demand and start a vicious cycle that can drag growth downwards.

Rural India has not remained untouched by the setbacks. That agricultural growth rate is above 2019 levels is a testament to the resilience of our farmers. However, rural India faces an acute crisis. As much as 77 per cent of the MGNREGA budget has been used in five months. If we were experiencing a 'historical' growth phase, demand for MGNREGA work would be lower.

Here again, we see the government adopting policies that hurt rather than help. The MSP (Minimum Support Price) for principal cash crops like cotton, paddy, and soybean has been increased by less than 5 per cent at a time when inflation has been in double-digits. Last week, the

government announced FRP for sugarcane. It has been increased by Rs 5/quintal (0.05/kg). The diesel price increased by Rs 16/litre during the same period. Agriculture employs one-half of the population. If agricultural incomes drop, it will further depress consumption. The government claimed as "historic" the measly increases in MSPs and FRP.

Over the next few days, we can expect a deluge of propaganda singing paeans to this government's economic policies. But that will not change the reality. The latest GDP numbers confirm our worst fear: economic recovery to pre-pandemic levels is nowhere close in sight. The government may outwardly exult in its "record" double-digit growth; privately, it is sure to be worried. India continues to stare at a long, challenging road ahead.

(Prof M V Rajeev Gowda is a former MP and Chairman, Research Department, Indian National Congress; Akash Satyawali is its National Coordinator)

Disclaimer: The views expressed above are the author’s own. They do not necessarily reflect the views of DH.