(Written by Rajinder Kumar)
The contraction of 23.9 per cent of real Gross Domestic Product (GDP) of the Indian economy in the first quarter (Q1) of the current financial year as compared to the last year’s Q1, as shown in the GDP data released by National Statistical Office (NSO) on August 31, has become a point of hot discussion and worry. In absolute numbers, this contraction means that India’s real GDP has shrunken to 26.90 lakh crore in Q1 this financial year from 35.35 lakh crore in Q1 last year.
These data are being interpreted in different manners by different sections of society, think-tanks, academicians, politicians, economists, businessmen and general people, both within and outside the country, but most of the interpretations are negative as they tend to be victim of seeing the plausible only. However, before jumping to any quick conclusion and/or forming a negative view about the whole matter, one must examine all facts and figures to avoid falling into the trap of any irrational conclusion.
The foremost point to be taken into account is that the above economic contraction has not happened because of any structural infirmity in the economic fundamentals of Indian economy; rather this has emanated from conditions created by the unprecedented pandemic and stringent lockdown enforced across the country. This line of argument should be seen with the fact that the main cause of economic slowdown and contraction is the contraction of demand which is clearly reflected in the low private consumption spending that fell by 26.7 per cent in Q1 this year. In terms of Gross Value Added (GAV) for Q1 of current financial year, the steepest fall has been reported in construction sector (-50 per cent) and trade, hotels, transport communications and services related to broadcasting (-47 per cent). The very inherent nature of these sectors is such that these sectors have borne the direct restrictive impact of rigorous conditions engendered by the Covid-19 pandemic and consequential lockdown.
Here, the takeaway is that the economic slowdown in Indian economy is not tangential to the special current circumstances but it is the core.
Further, while assessing these numbers, due attention must be paid to the fact that due to timely and stricter lockdown conditions enforced by the government, the pandemic induced death rate in India is one of the lowest in the world. The fatality rate in India was at 1.78 percent as on 31 August as compared to 3.04 per cent in US, 12.35 per cent in UK, 10.09 per cent in France, 1.89 per cent in Japan and 13.18 per cent in Italy.
Now look at the economic situation in other countries. The problem of economic slowdown is not exclusive to Indian economy; rather other major countries of the world have been witnessing similar economic contraction as India.
Worldwide, April to June point to point data show a significant contraction resulting from the pandemic. The US economy, for example, has contracted by 9.1 per cent, UK 21.7 per cent, France 18.9 per cent, Spain 22.1 per cent, Italy 17.7 per cent and Germany 11.3 per cent and Japan by 9.9 per cent. Overall, the Euro area has contracted by 15.0 er cent.
On the flip side, there are visible ‘green shoots’ in the economy. The agriculture sector has shown resilience by registering a growth of 3.4 per cent in the first quarter of the current financial year which is 0.4 per cent higher than the quarter last year. The eight core industries of coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity which comprise 40.27 per cent of the weight of items included in the Index of Industrial Production (IIP) are cumulatively showing positive signs in terms of consistent decrease in contraction of negative index which was -37.9 per cent in April to -22 per cent in May to -12.9 per cent in June and -9.6 per cent in July in the current financial year.
Besides, sales of passenger vehicles have risen to 1.83 lakh units in July as compared to 1.43 lakh in March this year. There are visible signs of revival in rural demand in terms of growing sales of small cars, two-wheelers and sports utility vehicles and fertilisers. Increase in registration of commercial and agricultural tractors to 66,061 units in August from 52,362 units in March, which is an increase of 26.16 per cent, is also an indicator of reviving rural demand.
Similarly, railway freight traffic, railway passenger bookings, domestic aviation passenger’s bookings, steel production and cement production have shown immediate positive signs of growth after the unlocking.
All these economic indicators prove that the current economic slowdown is associated more with the current unprecedented circumstances rather than any serious structural issues in the Indian economy.
(The author is Financial Advisor and Chief Accounts Officer, BBMB)
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