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Tuesday, May 17, 2022

The Real and the Surreal

🔴 There is no merit in the boast that India will be the fastest growing economy in the world. The GDP fell steeply, therefore the climb looks spectacular. If it had fallen more steeply, the climb would have looked more spectacular!

Written by P Chidambaram |
Updated: January 16, 2022 9:16:34 am
In the two years that India’s economy will record (-)7.3 per cent and (+)9.2 per cent, China is estimated to have recorded rates of +2.3 per cent and +8.5 per cent.

It was intended to be a shining star on the North sky to illuminate Punjab, Uttarakhand and Uttar Pradesh and to be admired from far away Goa and Manipur, all states going to elections soon. However, it turned out to be a shooting star, dazzled for a few hours on January 7-8, and vanished before the day was over.

The NSO’s First Advance Estimates (FAE) of National Income, 2021-22, were released on January 7. The centrepiece of the press release was the number 9.2 per cent. The NSO underlined that the estimated GDP growth at constant prices of 2021-22 (9.2 per cent) was against the contraction in 2020-21 (-7.3 per cent). According to the government’s spokespersons, we will wipe out the decline in 2020-21 and record a growth of approximately 1.9 per cent over 2019-20. If that were proved to be true, I shall be the happiest person. (The World Bank’s estimate is 8.3 per cent.)

Alas, the celebration will be premature. GDP at constant prices in 2019-20 was Rs 145,69,268 crore. In 2020-21, owing to the pandemic, the GDP had declined to Rs 135,12,740 crore. It is only when the GDP crosses the number of 2019-20 can we say that the decline has been wiped out and we are back to where we were at the end of 2019-20. According to the NSO, that outcome is likely in 2021-22; according to many observers it is not likely. The scepticism has deepened after the resurgence of Covid-19 and its new variant.

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Let’s look more closely at the FAE. According to NSO, the GDP will exceed Rs 145,69,268 crore by a small amount of Rs 1,84,267 crore, or by 1.26 per cent. That is, statistically, an insignificant amount. If any one thing goes wrong, the projected excess output will vanish. For example, if private consumption dips marginally or exports to a few markets are disrupted or investment lags slightly, the ‘excess’ will vanish. The best we can hope for is that, in 2021-22, the GDP at constant prices will equal — and not fall short of — Rs 145,69,268 crore. Achieving that number will mean the level of output of India’s economy will, after two years, be the same as it was in 2019-20 — thanks to the pandemic and incompetent management of the economy.

There is no merit in the boast that India is, or will be, the fastest growing economy in the world. The GDP fell steeply, therefore the climb looks spectacular. If the GDP had fallen more steeply, the climb would have looked more spectacular! In the two years that India’s economy will record (-)7.3 per cent and (+)9.2 per cent, leaving the GDP flat, China is estimated to have recorded rates of +2.3 per cent and +8.5 per cent. So, which country’s economy has grown and which country is indulging in vain boasts?

Average Indian poorer

The NSO’s numbers also show that the average Indian was poorer in 2020-21, and will be poorer in 2021-22 too, as compared to 2019-20. Also, he/ she spent and will spend less in the two years than he/ she spent in 2019-20. The per capita income and per capita consumption expenditure at constant prices in the three years are:


There are also other worrying indicators. Despite appeals to augment substantially government expenditure, the Government Final Capital Expenditure (GFCE) was only Rs 45,003 crore more in 2020-21 than in the previous year. Similarly, it will be only Rs 1,20,562 crore more in 2021-22 than in the previous year.

Investments are also limping. Gross Fixed Capital Formation in 2021-22 will move up a tad (Rs 1,21,266 crore) over the level achieved in 2019-20, totally insufficient in a pandemic-hit economy.

Reality Check

Among the people, however, there is more conversation about prices of gas, diesel and petrol than about the GDP. There is concern about unemployment. According to the CMIE, the urban unemployment rate is 8.51 per cent and the rural unemployment rate is 6.74 per cent. The reality is grimmer: many persons who hold a ‘job’ are disguising their unemployment. There is concern about prices of essentials like pulses, milk and cooking oil. There is concern about the education of children: in rural India and poor neighbourhoods of urban India, children have received no teaching during the last two years. There is concern about security: most mixed communities in the states of north and central India are like a tinderbox fearing the spark that will start a conflagration. There is concern about hate speech, digital abuse, trolls and crime, especially crimes against women and children. There is concern about the pandemic and the new variants.

The rulers do not care about the real concerns of the people. They have taken the high road to fight election battles. On the road, they are laying foundation stones, opening unfinished bridges, inaugurating empty hospitals, claiming that ‘80 per cent will fight 20 per cent’, and coining a slogan a day. It is surreal. The boast that India is the fastest growing economy is also surreal.

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