Last week the CSO released its estimates for national income and growth for the quarter ending June 2009. Most analysts (and markets) were cheered by the results. GDP growth (y-o-y) accelerated to 6.1 per cent from the 5.8 per cent rate recorded in the final two quarters of 2008/9, with particularly strong performances from construction, utilities and trade/transport/communications. Most private analysts interpreted the quarter’s growth performance as a strong sign that the worst of the global-crisis-induced slowdown in India was behind us and went on to revise upwards their estimates for full year GDP growth in 2009/10 as well as 2010/11. This newspaper celebrated, editorially, the fact that the lowest quarterly growth in the current slowdown was about equal to the average growth of the Indian economy in the quarter century up to 2003.
Interestingly, the newly constituted Planning Commission, which met under the Prime Minister’s chairmanship on 1st September, is reported (in the press) to have taken a more circumspect view. Specifically, it felt that the severe, ongoing drought would have a sufficiently negative impact on agricultural production in Q2 and Q3 of 2009/10 to make GDP growth in these quarters lower than the 6.1 per cent estimated for Q1. However, the Commission (reportedly) went on to forecast a robust recovery in Q4, which would deliver a full year GDP growth of 6.3 per cent. Furthermore, the Commission foresaw a strong rebound in economic growth in 2010/11 to around 8 per cent.
So where do I stand on all this? In a nutshell, quite close to Planning Commission’s (reported) assessment. In particular, I agree with the Commission that the adverse effects of the drought are likely to be severe enough to drag the GDP growth rate in Q2 and Q3 below the 6.1 per cent recorded for Q1. I am a little less sanguine about the strength of the recovery in Q4, partly because I believe the negative effects of the drought will still be significant and partly because I may be a little less bullish on the strength and durability of the global economic recovery. Hence, I would guesstimate full year GDP growth at 6 per cent, rather than the 6.3 per cent indicated by the Commission.
That said, there is no gainsaying the central fact that at a macro level the Indian economy has demonstrated remarkable resilience to the combined onslaught of the world’s Great Recession of 2008-09 and the country’s worst drought in over twenty years. Aside from China, no other major economy has withstood the global squalls so well. To provide more perspective, 7 or 8 months back, when global financial turbulence was at its worst and world trade was collapsing, most international organisations, including the IMF and World Bank, foresaw India’s growth slowing to well below 6 per cent in 2009/10 (and so did I). Now, many months later, and despite an unusually severe and unpredicted drought, hardly any professional analyst expects India’s GDP growth in 2009/10 to be noticeably lower than 6 per cent. Many expect the outcome to be in the range of 6 to 6.5 per cent. One surprising and recent exception is UNCTAD, which in its just published annual report on trade and development predicts India’s growth this year at an inexplicably low 5 per cent.
What about next year, 2010/11? Well, obviously it all depends on a number of weighty imponderables, including the quality of the next monsoon, the strength and durability of the incipient global economic recovery and the virulence of the swine flu pandemic. Two key factors lend credence to the Planning Commission’s expectation of 8 per cent GDP growth, or at least some rate close to that. First, if the next monsoon is even near normal, the agricultural sector is bound to show a strong rebound: instead of the normal 3 per cent growth a 6 per cent plus expansion is very likely. This means agriculture could contribute over one percentage point to GDP growth instead of its normal half per cent.
Second, a little remarked fact about the flow of quarterly GDP estimates thus far is the astonishing resilience of aggregate investment in the economy. As the table shows, the rate of gross domestic investment (total or in fixed assets) as a ratio of GDP has held up surprisingly well despite the buffeting of global gales. Thus, the aggregate investment ratios of the latest quarter, 2009/10 Q1, are still in the 35-40 per cent range and only slightly lower than those of 2008/9 Q1, in spite of the severe global crisis in the intervening year. (The decline is a little more pronounced compared to the peak investment levels of 2008/9 Q2). This certainly augurs well for output growth in the coming year, unless there is an unexpected collapse in investment after 2009/10 Q1. So far, the project pipeline data compiled by the Centre for Monitoring the Indian Economy provide some reassurance against such an outcome.
If the short-term macro outlook is fairly bullish, there is much less cause to be sanguine about recent developments in employment, poverty and economic disparities. I recall a prescient comment by a fellow seminar speaker, Jayati Ghosh, a year ago when she said “even if there are doubts about how inclusive India's recent growth has been, we can be sure the slowdown will be very inclusive.” The lack of reliable and timely data on employment and poverty in India is a massive handicap. Astonishingly, there is no large sample official survey of income, consumption or employment available after 2004/5, that is, almost five years ago.
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2. Estimates of Gross Domestic Product for the First Quarter (April-June) of 2009-10, Press Release, CSO. (Released on 31st August 2009) (http://mospi.nic.in/mospi_press_releases.htm)
Piecemeal and anecdotal evidence certainly point to significant reductions in employment, consumption and welfare in major segments of society. According to the Commerce ministry, the sharp drop in labour-intensive exports such as garments, leather products and gems and jewellery have led to employment losses in these sectors amounting to half to one million workers. Private trade associations cite higher figures of job losses. Even where jobs have not been fully lost, there are many cases of lower hours worked and reduced remuneration. In rural areas, the drought and its impact on agricultural activity is bound to have taken a severe toll of employment, income and consumption amongst millions of landless labour and smallholder farmers, the majority of whom are net buyers of food. Programmes, such as NREGA and public distribution of food grains, may have mitigated the distress. But the hard fact is that such programmes are usually weakest in the most populous and poorest States. The rise in prices of food items and other essential commodities in recent months is a clear indicator of widespread economic stress across the country, including among urban consumers, most of whom are not protected by cost-of-living adjustments to their incomes.
So, India’s GDP growth may have proven commendably resilient in the face of global crisis and severe domestic drought. But these phenomena have most likely inflicted grave hardships in terms of losses in employment, income and consumption amongst wide swathes of society, especially those most vulnerable. We will only learn more about the degree and extent of such distress years later.
The author is Honorary Professor at ICRIER and former Chief Economic Adviser to the Government of India. Views expressed are personal
