Editorial: Slow recovery

An already weakened Indian economy has been hit hard by the double whammy of the Ukraine war and the Omicron-driven third wave of the pandemic. As a result, the country’s gross domestic product (GDP) grew by a dismal 4.1% — the slowest in 12 months — in the final quarter (January to March) of 2021-22. This slump brought down the country’s economic growth for the entire financial year to 8.7%, lower than the 8.9% that the Ministry of Statistics had projected three months ago. With the spectre of the fourth Covid wave looming large and the war in eastern Europe still raging on, tough times appear to be in store for India on the economic front. Private consumption in per capita terms remains below the pre-pandemic period, a reflection of the unevenness in recovery. A detailed look at the components of the GDP suggests that overall recovery in relation to the pre-pandemic period is weak, and when it comes to private consumption the situation is not good. The GDP witnessed an encouraging growth rate of 20.1% compared with the year-ago period during April-June 2021, when the Delta-induced second wave was wreaking havoc. However, the low benchmark for comparison — the lockdown-hit quarter of April-June 2020 — contributed towards presenting an optimistic picture. Once the base effect wore off, the economy found itself confronting a sobering reality. The GDP grew 8.4% (July-September 2021) and 5.4% (October to December 2021), defying expectations that the end of the second wave and the onset of the festival season would boost demand as well as consumption.

In absolute terms, private consumption in 2021-22 was Rs 83.77 lakh crore, higher by 1.4% in relation to the pre-pandemic year of 2019-20. However, when seen in terms of per capita private consumption, the picture is different. Per capita private consumption in 2021-22 was Rs 61,215, lower than the Rs 61,594 recorded in 2019-20. It means that private consumption today in per capita terms is yet to catch up with the pre-pandemic period. Though the growth of India’s manufacturing sector has stabilised over the past two months, it is not enough to turn the tide. Both the manufacturing and services sectors need to fire on all cylinders to spearhead economic recovery. The Centre must strike a balance between its efforts aimed at taming inflation and bolstering the GDP. Given the soaring inflation and weak demand, the fiscal policy will have to play a primary role in providing support to the economy. The economy’s near-term prospects have been darkened by a spike in inflation which hit an eight-year high of 7.8% in April. The surge in energy and commodities prices in the wake of the Ukraine war is proving to be a further drag on the economy. Earlier this month, the Reserve Bank of India raised the repo rate by 40 basis points.

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