Editorial: Reset recovery expectations

Contrary to the narrative being advanced by the NDA govt, GDP growth has been a point of growing weakness for the last five years

The negative growth rate of 7.3% for 2020-21, the worst-ever performance in over four decades, has a grim message for the Indian economy. It means the recovery is going to be a long and arduous journey, and the government needs to reset its expectations based on pragmatic assessment of the ground realities rather than being overly optimistic. Though the fourth quarter of the fiscal showed a meagre rise of 1.6%, it hardly offers any comfort. This is because during the January-March period, all sectors had been completely opened and the situation was near normal. The GDP numbers, released by the National Statistical Office, reflect the fragile state of the nation’s economy. It is all the more glaring, given the fact that the Centre had begun the unlock process from July 2020 onwards after imposing a nationwide lockdown in March. Contrary to the narrative being advanced by the NDA government, the GDP growth rate has been a point of growing weakness for the last five years. The economy was on the downslide even before the outbreak of the pandemic. As the shock waves of demonetisation and a hastily implemented Goods and Services Tax (GST) regime adversely impacted an economy that was already struggling with massive bad loans in the banking system, the GDP growth rate steadily fell from over 8% in FY17 to about 4% in FY20, just before Covid-19 hit the country. Experts have been arguing that the fundamentals of the Indian economy were already quite weak well before the pandemic.

It’s a gloomy picture as far as the unemployment rate and inflation are concerned. Over one crore people have lost their jobs and sources of livelihood during the second wave of Covid-19 and nearly 97% of households’ incomes have declined since the beginning of the pandemic last year, according to the latest data compiled by the Centre for Monitoring Indian Economy. The unemployment rate touched 12% at the end of May as against 8% in April. The labour participation rate — the percentage of the working age population in the market — has come down to 40% now from the pre-pandemic levels of 42.5%. Inflation is another source of big worry. It is for this reason that the Reserve Bank of India is expected to avoid cutting interest rates in its upcoming monetary policy review later this week. Unless consumption demand picks up, there is a danger that the recovery will run out of steam. At this juncture, the economy needs a booster dose in terms of fiscal support from the government. There is a strong case for implementing an income support programme to put purchasing power in the hands of battered households dealing with double-digit unemployment.

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