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GDP noses ahead of pre-COVID-19 levels, but don’t pop the champagne yet

To assess how far the economy has recovered from the piling rubble of COVID-19’s devastation, it will be more prudent to compare the current year’s metrics with that of 2019-20, the immediate pre-COVID-19 year.

November 30, 2021 / 07:53 PM IST

India’s real or inflation-adjusted gross domestic product (GDP) grew 8.4 percent during July-September, swinging sharply to the positive quadrant compared to the previous year’s 7.4 percent fall. However, the big question still remains: Is this strong enough to fully offset the COVID-19 shock?

As the winter sets in, anecdotal evidence suggests that there is a spring in the step of the Indian economy.

How do you spot an economic revival? One of the surest signals can be found in shopping malls, or neighbourhood shopping complexes. The footfalls are back. Consumers are back at shops. Consumption spending, the strongest edifice of the India growth story, appears to have regained its mojo.

Household spending, or so the rush at malls, and the shopping arcades suggest, seems to be powering revival in the broader economy, and helping India regain its lost status as the world’s fastest-growing major economy.

Daily COVID-19 cases have remained within manageable limits for the last several weeks, although we cannot afford to let our guard down, given the looming risks that Omicron — COVID-19’s new ‘variant of concern’ is posing.

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These are extremely early days in the revival journey, but the national income data the National Statistical Office (NSO) released on November 30, do carry pieces of data that show the economy may have turned the bend for the better.

The GDP for July-September in 2021 at constant 2011-12 prices stood at Rs 35,73,451 crore, which was 0.3 percent higher than Rs 35,61,530 crore in 2019-20.

This is a big leap compared to the first quarter (April-June), when real GDP grew 20.1 percent compared to 2020-21, but was still 9 percent lower than 2019-20 GDP levels of the same quarter.

To assess how far the economy has recovered from the piling rubble of COVID-19’s devastation, it will be more prudent to compare the current year’s metrics with that of 2019-20, the immediate pre-COVID-19 year.

The latest set of data shows the broader economy appears to have covered considerable ground in July-September 2021, with real GDP levels managing to keep its nose ahead of 2019-20.

In many ways, the comparison with 2020-21 can be fallacious, and misleading, because it was a washout year, given the debilitating consequences of the global pandemic.

The gross value added (GVA), which is GDP minus taxes, and is often considered a better proxy to measure economic activity, for the manufacturing sector grew 5.5 percent during July-September 2021 compared to a contraction of 1.5 percent in the same quarter last year.

There is an optimistic piece of data hiding in the details. The manufacturing sector, which accounts for about 17 percent of India’s GDP, grew 3.9 percent in the second quarter this year, compared to the same period in 2019-20.

Private final consumption expenditure (PFCE), a gauge to measure household spending, also appears to be inching towards 2019-20 levels. The PFCE during July-September (at 2011-12 prices) stood at Rs 19,48,346 crore, which was nearly 9 percent higher than the same quarter in the previous year, but 3.5 percent lower than the levels of July-September 2019-20.

A big part of the turnaround is also attributable to government spending, with the GVA in public administration, defence and other services growing 17.4 percent this year during the quarter over the same period in the previous year, and 6.6 percent higher than the pre-COVID-19 year of 2019-20.

Investment also appears to have gathered pace. The gross fixed capital formation (at 2011-12 prices) grew 11 percent in July-September this year over the same quarter last year, and was 2 percent greater than the same period of 2019-20.

All these are bullish pointers. The challenge is to sustain this. The economy has managed to just nose ahead of pre-COVID-19 levels. The challenge is to move onto a faster lane for several quarters at a stretch.
Gaurav Choudhury is consulting editor, Network18.
first published: Nov 30, 2021 07:10 pm

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