According to statistics released by the National Statistical Office (NSO), the Indian economy grew by 20.1 per cent in the first quarter (April-June) of FY 2021-22, as comparedto the first quarter of FY 2020-21. The Chief Economic Advisor (CEA) to the Government of India reacted ecstatically; according to the CEA, growth at this rate validated his year-old prediction of a V-shaped economic recovery.
The truth is, however, slightly more nuanced. Last year, the economy had contracted by a record 24.4 per cent in the first quarter, so, the GDP of the first quarter of the current year, Rs.32.38 lakh crore (constant prices), is still lower by 9.2 per centcompared to the GDP of the first quarter of FY 2019-20, Rs.35.7 lakh crores.Moreover, the GDP of Q1 of FY 21-22 is actually16.9 per centlower than the GDP of Rs 38.96 lakh crore of the immediately preceding quarter, January-March 2021.
Yet, we need not despair. According to economists, economic cycles have four phases: expansion, peak, contraction, and trough.Analysing recent trends in the Indian economy, we had almost 8 per cent growth between 2003 and 2007, before a trough in 2008, when the growth rate slipped to 3 per cent. After a mild trough in 2011 when the growth rate dropped to 5.2 per cent, we had an upswing with a peak growth of 8.25 per cent in 2016, after which growth steadily slowed to 4.2 per cent in 2019-20. The pandemic deepened the trough; the Indian economy contracted by 7.2 per cent in FY 2020-21.As growth invariably follows a trough, an economic recovery is on the horizon; if nothing adverse happens the economy would recover fully in this financial year, withGDP at near pre-covid levels.
The table published by the Ministry of Statistics and Programme Implementation,shows that oureconomic recovery is real and substantial but not uniform; some sectors of the economy are still languishing (see table).
While the agricultural sector grew, albeit modestly, during both waves of Covid-19, GDP of other sectors declined precipitously during the first wave, while recovery in the second wave could not take them to pre-Covid levels -except for the electricity and other utilities sector. A decidedly heartening development is that manufacturing and construction ~ two labour intensive sectors ~ are almost back at pre-Covid levels. However, the transport and hospitality sectorsareyetto recover. Tax collections are also on the upswing. Official statistics for the first quarter are not available so far, but in a reply in the Lok Sabha on July 19, the Minister told Parliament that the gross tax mop-up of the first quarter,led by record-breaking GST collections,was 107 per cent higher than that of the corresponding period of 2020-21 and 39 per cent higher than the collection of Q1: 2019-20. But some headwinds are causing concern. The rain gods have not been kind; by the end of August, overall rainfall deficiencywas 10 per cent, with 10 Union territories/ States,showing a deficit of 23-52 per cent. Some States had a higher deficit, Manipurreported a 58 per cent deficit and Gujarat had a deficit of 50 per cent. More than 36 per cent districts,in the country,had deficitrainfall.Major producers of kharif crops, Madhya Pradesh, East Rajasthan, Gujarat, Bihar, Haryana, Uttar Pradesh, Jharkhand and West Bengal had deficient rainfall in the peak Kharif sowing time; till middle of July, the area under kharif crops was lower by 11.6 per cent. According to an IMD statement,the rainfall-deficient states are unlikely to make up their deficit, which would affect their agricultural output.
Employment statistics reflect the patchy nature of the recovery. Comparing the number of persons employed in July 2019 to July 2021,unemployment has grown by 2.3 per cent. Compared to pre-pandemic times, salaried jobs have declined by 11.7 per cent,the number of businesspersonshasdeclined by 7.5 per cent and small traders and daily wage labourers by 3.2 per cent. In a denouement of classical economic theories, which posit that as countries develop, people steadily move from the primary sector (agriculture) to the secondary sector (manufacturing) and then to the tertiary (services) sector, the Indian economy is seeing a movement in the reverse direction ~ the decline in employment in the secondary and tertiary sectors is accompanied by an increase in the number of farmers by 9.6 per cent.
Considering the first quarter of the last four years, private spending or the Private Final Consumption Expenditure (PFCE) which makes up 55 per cent of our GDP, is currently at 2017-18 levels, 16 per cent lower than the 2019-20 level. The Government is also not spending. Government Final Consumption Expenditure (GFCE) contracted by 4.8 per cent in the first quarter of this year. The challenge before the Government is to stimulate demand; but till now most of the efforts of the Government have been in the direction of shoring-up supply by making credit availableeasily and hoping that demand would rise correspondingly. In this scenario, falling employment levels and rising inflation are not good portents because the first limits incomes and the second constricts purchasing power.
A reorientation of the Government’s policies may be necessary to accelerate growth and employment. Though most of the Government’s signature schemes like Atmanirbhar Bharat and Production Linked Incentive (PLI) are aimed at the manufacturing sector, yet the share of manufacturing in GDP has remained stagnant at 17 per centin the last 5 years, while employment in the manufacturing sector has declined sharply by 46 per cent. Quantitively, employment in the manufacturing sector that was 5.1 crores in 2016-17, fell to 2.73 crores in 2020-21. On the other hand, with a comparable share in the GDP, the agricultural sector employed 14.56 crore people in 2016-17 which increased by 4 per cent to 15.18 crore in 2020-21. In absolute terms, 40 per centof the total workforce was employed in agriculture in 2020-21, up from 36 per cent in 2016-17. So far, the agricultural sector has received negligible support from the Government. After Budget 2019, the FM announced a reduction in corporate tax rates, providing a relief of Rs 1.40 lakh crore to corporates, thereafter, the FM also gave further relief of Rs 2 lakh crore to the business sector. Tax rates for Foreign Portfolio Investors were also cut. Around 80 per cent of the stimulus of Rs 25 lakh odd crore announced by the FM from April to November 2020, had gone to MSMEs and corporates. On the other hand, out of an allocation of Rs 3.34 lakh crore in Budget 2019 for agriculture and allied activities, only Rs 2.35 lakh crore was spent. The cash component of the stimulus of Rs 4.30 lakh crore for farmers, was only Rs.50,000 crore, which covered only half of the Budgetary shortfall of Rs 99,000 crore.
Despite such step-motherly treatment, the agricultural sector was the only sector of the economy that withstood the vagaries of the Coronavirus scourge, growing by 3.4 per cent in FY 2020-21, when other sectors floundered, and the economy shrank by 7.2 per cent. Demand for tractors, agricultural implements, fertilisers etc kept the cash registers of many manufacturing concerns ringing. Exports of agricultural commodities rose by 22.62 per centin FY 2020-21, to Rs.3.05 lakh crores ~ at the time when overall exports declined by 7.2 per cent. Agro-based, export-oriented industries dovetailing with the farm sector would give a boost to both employment and agriculture. Indeed, if sufficient money and sincere efforts are put in by the Government, farming could rejuvenate the economy. In conclusion, a rethink of our economic strategy is required. We should think small rather than big; with technical guidance and adequate capital, our vast army of unemployed engineers can set up small, specialised technical units which could provide gainful employment to many. The focus should be on incentivising employment intensive small businesses which would benefit a larger number of people rather than promotingautomated, large-size modern manufacturing facilities. What the US politician Jon Huntsman, Jrhad said about the US economy applies fully to the Indian economy: “But economic recovery must be earned. And it will be earned by entrepreneurs and it will be earned by small businesses.”