In a few days from now, the National Statistical Office will release its first advance estimate of GDP for the ongoing financial year (2021-22). While these estimates will be subsequently revised —they are based on data only for the first eight to nine months of the year — forecasts by most economists have till now suggested that the Indian economy will surpass, though barely, its pre-pandemic level by the end of this year. However, the rapid spread of Omicron has now created considerable uncertainty. But to what extent the third wave of infections, and the consequent imposition of restrictions on activities, will impact the economy in the last quarter, services in particular, will only be evident in the weeks and months ahead. Notwithstanding that, the GDP data will confirm two lost years of growth.
For some though, the loss will be of a much higher magnitude. Parts of the economy continue to struggle, operating well below their 2019-20 levels.
The headline GDP numbers mask the highly uneven nature of the recovery — the formal or the organised sector is faring better, gaining at the expense of the informal, and within the formal, the larger firms doing better than the smaller ones. As a substantial share of the country’s labour force is employed in the informal sector, especially in the MSMEs, this growing concentration of economic power has implications for employment prospects. The labour market data from CMIE suggests that the scars are yet to heal. The labour force participation rate has fallen, which suggests that many have simply stopped looking for jobs. The high unemployment rate indicates that joblessness remains high. A consequence of this continued distress in the labour market is that private consumption is likely to remain subdued. Households remain extremely pessimistic as witnessed in the RBI’s consumer confidence surveys.
A few weeks from now, Union finance minister Nirmala Sitharaman will present the budget for 2022-23. With the constraints on government finances, it is difficult to see a significant expansion in government spending to support the economy. However, considering the uneven distribution of economic loss of the last two years, the government must examine all the options before it. It must begin by making an honest assessment of the state of the economy, articulate how it intends to alleviate the lingering economic distress, and present a clear roadmap for getting the economy back to a higher growth trajectory.