Opinion Latest GDP estimates: Recovery is partial and uneven, scars remain

Work demanded by households under MGNREGA, even though it has fallen below the highs observed during the Covid years, remains well above the pre-pandemic levels. This reflects either the absence of more productive forms of employment or the need to supplement the meagre earnings from other jobs. In 2022-23, 8.76 crore individuals worked under the programme, as compared to 7.88 crore in 2019-20, and 7.77 crore in 2018-19. Alongside this persisting demand for work under MGNREGA, the subdued growth in rural wages across three major occupations — general agricultural and non-agricultural labourers and construction workers — also points towards a slack in rural labour markets.

Second, the industrial sector has slowed down considerably, dragged down by the lacklustre performance of manufacturing. While the manufacturing sector did register a turnaround in the fourth quarter — it had contracted in both the second and the third quarters — growth for the full year was a mere 1.3 per cent. The robust growth registered by the construction sector throughout the year was simply not enough to offset it. Alongside, the industrial sector’s share in the urban labour force has fallen from 34 per cent during January-March 2022 to 32.9 per cent during January-March 2023 as per the periodic labour force surveys.

The PLFS data also shows that within the non-farm sector, a larger share is now employed in informal enterprises. The share of workers engaged in proprietary and partnership enterprises (considered as informal sector firms) among those engaged in the non-agricultural sector has gone up from 68.2 per cent in 2017-18 to 71.8 per cent in 2021-22 — an increase of 3.6 percentage points. Considering the various policies of the government to nurture the industrial sector, boost employment opportunities, and facilitate the formalisation of the economy, this should certainly be worrying.

Third, investment activity did register a healthy growth rate in the second half of the year, even as the base effect faded away. With this momentum, the investment to GDP ratio touched 29.2 per cent in 2022-23. However, this is only in line with its average level between 2014-15 and 2019-20. The disaggregated data shows that when the investment ratio rose from 27.3 per cent in 2020-21 to 28.9 per cent in 2021-22, almost two-thirds of the increase of 1.6 percentage points was driven by the household sector, a little less than a third by the larger public sector, and the balance accounted for by private sector firms. It is possible that this trend has continued with the public sector, more specifically the central government, and households driving investment activity in the economy.

Another peculiarity of the fourth quarter GDP data is that it points towards the possibility of the country running a current account surplus (or at the very least a minuscule deficit). A current account surplus would imply weak investment demand in the economy relative to savings. Put differently, instead of borrowing from abroad to finance investments, India was perhaps investing abroad (or borrowing minimally for investments).

Fourth, the toxic combination of low mobility and high inequality has meant that even as spending on high-end goods and services has witnessed robust growth, overall household expenditure has remained depressed, dragged down by subdued spending of households at the lower and middle parts of the income distribution. In the second half of last financial year, as the base effect subsided, private consumption grew by a mere 2.5 per cent. Trade data also shows that over the same period, merchandise imports (excluding oil, gems and jewellery) grew by a mere 2.2 per cent, also signaling weak domestic demand.

This is an outcome of low income growth, limited opportunities for productive employment, and a steady erosion of purchasing power due to inflation. In the fourth quarter, the economy, in nominal terms, grew at the slowest pace in nine quarters. Moreover, the additional household savings accumulated during 2020-21 have been drawn down, and can no longer provide the boost to private demand. And alongside this, the gap between real and nominal growth in sectors providing basic necessities such as agriculture (4 per cent vs 12.1 per cent) and utilities (9 per cent vs 33.5 per cent) points to how inflation was constricting household consumption.

Lastly, if the Indian economy had grown at its pre-pandemic trend growth during these years, then in real terms, it would have been higher than current levels. This represents the economic loss.

Thus, while the economy is clawing back from the depths seen during the pandemic, the recovery is partial and uneven. The scars remain. The momentum of the underlying drivers of growth is not as strong as many believe. How these contradictions are resolved will have a bearing on the economy’s growth prospects.

ishan.bakshi@expressindia.com