The Editorial Analysis: The Choppy Waters

 

Economy in news: Relevance

• GS 3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

 

Recent CSO estimate: Context

• According to the recent estimates, India’s gross domestic product (GDP) is reckoned to have grown 8.7% while the Gross Value Added (GVA) rose 8.1% in 2021-22.

 

Economic growth in India: Key points

• Indian economy declined due to the COVID-19 lockdowns in 2020-21, however, the latest numbers show India is emerging out of the tunnel of pandemic-induced woes.
• The overall GDP and GVA have indeed recovered from pre-pandemic levels, but only just, by 1.5% and 2.9%, respectively.
• For one, it is not a V-shaped recovery, with GVA from job-creating sectors (trade and hotels) still 11.3% below 2019-20’s low levels.
• While GVA from industry is up 6.7% over 2019-20, another job creating sector, construction, is up only 3.4%, while mining has grown a meagre 1.9% over the two-year period.
• Manufacturing lifted the industry GVA, growing 9.3% from 2019-20 levels, but there are cracks on that front — the January to March 2022 quarter (Q4 of 2021-22) recorded a 0.2% contraction, year-on-year.

 

 

Issues in Indian economy

• With reluctant demand, supply-chain and input cost woes hurting manufacturing, and public administration lifted the growth amid slower growth in Services and Mining.
• A recovery in investment demand, helped by the Government’s capital spending, is a silver lining, but the lingering concern is that consumption remains troubled, and unless it recovers, private investments will remain aloof as will sustainable high growth.
• Worse, as inflation flared up, households’ consumption growth has steadily dropped through 2021-22, growing a mere 1.8% in Q4.
• Price rise, combined with higher interest rates, could squeeze middle class disposable incomes and dampen consumption further.

 

 

Way forward

• Yes, India is the fastest growing major economy and likely to remain so in 2022-23.
• But the rising tide in the past year has not been enough to lift all boats stranded in the detritus of the pandemic and the slowdown that preceded it.

 

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