India's GDP passes pre-Covid level, but by a tad; France still 0.4% below

India’s gross domestic product (GDP) has crept higher than it was before the Covid-19 pandemic.

The September quarter GDP numbers show India’s real GDP at Rs 35.73 trillion. This is 8.4 per cent higher than it was in September 2020. The previous year suffered from the pandemic lockdowns and its effects. A comparison with pre-pandemic 2019 provides a sense of growth after Covid-19. GDP shows a growth of 0.3 per cent, compared with September 2019. Other large economies show varying trends.

An analysis looks at two of them — the US and France. The latter is still 0.4 per cent below where it was in 2019. The US has seen 1.9 per cent growth.

The structure of each country’s GDP was different, with different components driving up growth, even before the pandemic. Agriculture accounted for 2 per cent of GDP in France and 1 per cent in the US.  It is 16 per cent in India.

The pace of gross value added in agriculture, forestry, and fishing exceeded expectations, according to a note from Aditi Nayar, chief economist of rating agency ICRA, on the latest September numbers. Public administration, defence, and other services were the other surprise factors, said Nayar.

The resilience of the recovery may be under question, given that private final consumption expenditure is still trailing pre-Covid levels, she added.

This is in contrast to the US. A November 14 ‘2022 US Economic Outlook’ report from financial services major Morgan Stanley noted that services demand and labour growth are propelling consumer spending.

“Households have steady labour income growth, further stimulus in the pipeline, and a modest savings cushion to draw upon. With ability to spend, the willingness to spend has proved itself. In our forecasts, we expect spending to remain elevated,” said the note authored by chief US economist Ellen Zentner, and economists Robert Rosener, Julian M Richers, Christopher G Collins, and Sarah A Wolfe.

Services value added is 76.9 per cent of GDP in the US. It is 70.2 per cent in France. The India number is 49.4 per cent. Consumer spending also drove growth that France saw in the September quarter. Another driver has been exports. France had also seen government-led pandemic support payments.

There had been concerns that the US household spending would be affected by the end of government benefits put in place to help people deal with the pandemic, noted the Morgan Stanley report. This did not materialise there with adequate liquidity, even outside the richest 20 per cent of households. 

“...the hand-off from government transfers to labour income as the primary driver of growth in personal income has been unusually smooth. By September 2021, job gains, coupled with increased hours worked and stronger wage growth, had made up for wage compensation losses accumulated throughout Covid-19. Excess savings continues to offer a significant safety net, particularly for the bottom 80 per cent of US households,” it said.

Private consumption demand in India would pick up, with employment and income growth in the small and medium sectors, according to a note from EY India Chief Policy Advisor D K Srivastava. This, in turn, is linked to services recovery, such as in trade, hotels and others, according to him.

“This may happen in the second half of 2021-22, provided economic activities are not beset again by Covid’s new strain, Omicron,” said Srivastava.