When seen in its entirety, the GDP data published on Tuesday by the National Statistical Office shows that the growth momentum in the Indian economy seems to have been much more resilient during the pandemic.
The huge revisions in the 2020-21 GDP growth numbers and even those in the first quarter of 2021-22 are primarily due to substantial upward revisions in manufacturing and construction activity. Such revisions have been of the order of Rs 2.7 trillion. This clearly indicates that the impact of the pandemic on the manufacturing and construction sectors was not as significant as believed earlier. However, this once again highlights the serious issues regarding the data on the index of industrial production and the consumer price index that are much more volatile than say the data gathered through the Annual Survey of India. The three-year average GDP is now at 3.4 per cent. That puts India at the sixth position, if we were to take a similar measure across other countries.
Even as third-quarter GDP data reveals that private consumption expenditure (PFCE) slowed down to a growth of 2 per cent, if we were to look at the quarter-on-quarter changes, independent of the base effect of the third quarter of last year, private consumption grew by 7.3 per cent. This is only a shade lower than the pre-pandemic average growth of 8.3 per cent in the third quarter from 2015-16 to 2019-20. Another aspect of the resilience of demand is that the consumption of resident Indians in the domestic market and the rest of the world far outstrips the declining share of foreign households in domestic consumption.
With the government’s efforts at improving the quality of life of all citizens and the reduction in leakages of subsidy with the shift to the direct benefit transfer, the per capita GDP at current prices is estimated to have grown at 8 per cent compounded per annum since 2013-14. Excluding the pandemic year, the average growth is at 10.3 per cent. Even in the current fiscal, there is a jump in per capita GDP by Rs 25,218.
The investment and savings data over the past decade also throws up interesting points (all numbers are as a percentage of GDP). Gross capital formation by the government touched a high of 11.8 per cent in 2021-22, up from 10.7 per cent in 2020-21. This also had a domino effect on private sector investment which jumped from 10 per cent to 10.8 per cent over the same period. In fact, the trends in GCF to gross output ratio or the plough back of funds for the creation of fresh capacity shows that for public administration the ratio attained a fresh peak in 2021-22 owing to the emphasis on capital expenditure in recent budgets. At the aggregate level, gross capital formation is supposed to have crossed 32 per cent in 2022-23, the highest level since 2018-19.
In 2021-22, gross savings have risen to 30 per cent from 29 per cent in 2020-21. The ratio is supposed to have crossed 31 per cent in 2022-23, the highest since 2018-19. Household savings increased sharply during the pandemic period on account of sharp accretion in financial savings such as deposits. While household financial savings have since then moderated from 15.4 per cent in 2020-21 to 11.1 per cent in 2022-23, savings in physical assets (households and MSMEs) have grown sharply to 11.8 per cent in 2021-22 from 10.7 per cent in 2020-21. Clearly, the low-interest regime did work.
So what is the outlook for the coming year? First, we should not be concerned regarding the recent news of El Nino. Quoting from a RBI (2015) report “Over the past 50 years, El Nino conditions have occurred 31 per cent of the time but not always caused a drought. In fact, in most El Nino years since the 1950s, summer rains ranged from well below average to average and even above average”. This indicates that there may not be a one-to-one correspondence between El Niño and Indian droughts and the recent fears seem misplaced.
Second, retail/personal loans have, of late, been the fastest-growing segment fuelled by the common man’s dream to own a house. The nudge by the regulator towards a floating rate regime has meant that an overwhelming percentage of loans are now repo linked. The rapid increase in the policy rate of 250 bps over six meetings of the monetary policy committee has also meant frontloading the incremental rate rise in the EMIs of borrowers. A preliminary analysis shows that the 250 bps rise in the repo rate, and its pass-through, could increase the interest component alone by at least 16 per cent for a borrower in a year resulting in a situation where the outstanding loan amount increases incrementally, even though it is being serviced. In extreme cases, the interest servicing could outstrip the principal component itself. On the downside, if the borrower wants to keep the EMI unchanged, the loan tenure could extend beyond five years, the maximum permissible RBI extension limit. The good thing is that in such cases, it might also mark a shift in the credit behaviour of borrowers catalysing them to prepay the amount, enhancing the credit file/score for subsequent loans taken. But with an unyielding US labour market, policy tightening by the US Federal Reserve has put emerging market economies in a loop with every hike opening the doors for subsequent hikes. We hope that decoupling from the US Fed is in the air.
Coming back to the GDP data, there is a thought-provoking idea to offer. While women form the backbone of unpaid domestic work, it’s often invisible and out of the domain of calculable economic activities. As per our analysis based on the data provided by NSS report (January – December 2019) regarding unpaid domestic and caregiving services by women for household members, under modest assumptions, the total contribution of unpaid women to the economy is around Rs 22.7 lakh crore which is almost 7.5 per cent of India’s GDP. We believe even this number may be an underestimate. Is it time to quantify this contribution to the economy?
The writer is Group Chief Economic Advisor, State Bank of India. Views are personal
