Indian economy sending out mixed signals

The government must address societal disquiet for the economic recovery to be equitable

AuthorPublished: 4th Mar 2021  12:00 amUpdated: 3rd Mar 2021  9:53 pm

Slowly coming out of the devastating impact of the pandemic, the Indian economy is sending out mixed signals. The good news is that the country has exited a technical recession by growing 0.4% in the October-December quarter, providing a sense of comfort that the worst phase may well be behind us. However, private consumption is yet to pick up while unemployment is still very high and the informal sector continues to be in a shambles. After falling into a negative territory with two consecutive quarters of contraction in the gross domestic product (GDP), the third quarter of 2020-21 not only saw India climb out of a recession but also put it on a par with China and Vietnam that recorded positive growth. The marginal growth can be attributed to the festive spending, rebound in construction and manufacturing and a jump in government expenditure. However, the economy could slip back into a contraction in the fourth quarter as a loss of momentum of the economic recovery as well as subsidy pay-outs in the current quarter could compress the GDP numbers. It must be pointed out that the margin of 0.4% is too close for comfort. The National Statistical Office’s second revised estimates revealed that the GDP will decline by 8% in 2020-21, worse than a forecast of 7.7% contraction made in January. Despite the pickup during the festive season, private consumption expenditure continued to contract in the third quarter and trailed the performance of investment and government spending.

It must be noted that nearly 60% of India’s GDP is consumption-driven. The sharp pickup in the capital spending of the Central government has spurred the growth in gross fixed capital formation during the period but the private sector participation remained uneven and subdued. The agrarian unrest has deepened further following continued protests against the new farm laws. A credit crisis is looming large over the small and medium sector which bore the brunt of the pandemic. Since India can no longer afford jobless growth, there is an urgent need to address the societal disquiet for the economic recovery to be equitable. Another area of concern is that the issues of the States are being routinely ignored by the Centre in violation of the federal spirit. The economic recovery requires sustained policy support to rev up the growth momentum in key sectors like manufacturing, construction, travel and trade segments. Accelerated vaccination coverage, a prerequisite for the revival of the services sector, and effective follow up of the Budget’s growth strategy hold the key to overall revival. India’s success in turning the corner in the post-pandemic world will largely depend on how well it is prepared to tackle the problems confronting the common man.

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