Behind the bounce

Growth has not come roaring back after the pandemic

On Tuesday, the National Statistical Office (NSO) released its provisional estimates of gross domestic product (GDP) for 2021-22 as well as its quarterly estimates relating to the final quarter of the past financial year, ending on March 31. The NSO estimates that GDP at constant prices grew 4.1 per cent, year-on-year, in the January to March quarter, which is broadly in line with expectations prior to this release. GDP growth for the entire year comes in at 8.7 per cent provisionally, after the pandemic-related contraction of 6.6 per cent in the previous financial year of 2020-21. This is a little lower than was hoped earlier, but reflects updated expectations consequent to the spread of the Omicron variant of Covid-19 earlier this year.

It is worth noting that the level of real GDP in 2021-22 — Rs 147 trillion — is only marginally higher than the level in the pre-pandemic year of 2019-20, of Rs 145 trillion. This corresponds to 1.5 per cent growth over two years, indicating that the bounce-back following the pandemic has only been sufficient to make up for the contraction in the previous year, and nothing more. Of the major sectors of the economy, trade and transport in particular is yet to recover, growing at 11.1 per cent in 2021-22 after a contraction of 20.2 per cent in the previous year. In an aggregate sense, growth has not yet returned to the post-pandemic Indian economy.

This should be kept in mind when considering future growth prints. The first quarter of 2022-23 will likely see a spike in growth. This is a consequence of the low growth recorded in the first quarter of 2021-22, when India was reeling from the devastating second wave of the pandemic driven by the delta variant of Covid-19. But over the course of the ongoing financial year, growth will moderate. For some time therefore it would be wise to not look only at the growth rates but also to compare the actual levels of output to the pre-pandemic levels in order to better understand the degree of recovery. There are good reasons to assume the growth outlook is uncertain. Employment and output have clearly not recovered meaningfully from the pandemic shock. Further, there are concerns about major headwinds for India from slowing global growth driven by both the spread of the Omicron variant in China and the Russian Federation’s invasion of Ukraine. It is being speculated that the world economy has entered a period of stagflation.

Under such circumstances, it may be too much to expect an exceptional performance from Indian growth. The disaggregated components of national income and expenditure in the data released on Tuesday underline the fact that costs have risen, visible particularly in the sharp rise of the value and share of imports. It is worth noting that government final consumption expenditure has moderated to about 10.7 per cent of GDP as opposed to 11.3 per cent last year (in constant prices). This should be seen together with the data, also released on Tuesday, that India’s fiscal deficit at 6.7 per cent was lower than the revised Budget Estimate of 6.9 per cent of GDP in 2021-22. April’s tax collection numbers are also promising. Thus, the government might have a little firepower to deal with difficult times ahead.