RBI annual report and NSO estimates

Udayan Hazarika

(The writer can be reached at udayanhazarika@hotmail.com)

Five months have elapsed since the beginning of the current fiscal and the RBI finally wakes up to ring up the alarm bell to send the distress signal across the nation to call for a concerted effort for revival of the free falling of the economy (RBI Annual Report 2020). This they could have done two months earlier resorting to a midterm review of the economic indicators in view of the devastation done by the pandemic. But the Central bank preferred to stick to its tradition. In their annual report for the period June 2019 to July 2020, they have worked out the performances of the economy for the last year and prescribing some remedies for the current year while almost two quarters have already elapsed. The report has nothing new to say about the last year's performance. We have already analysed the last year's performance earlier (The Sentinel: July 20) and provided exactly the same prescription what the RBI is now prescribing.

The present situation is the one in which the government must act carefully. The effort on the one hand is to stabilise the volatile market and on the other hand to control the restless purchaser having meagre amount in hand as purchasing power. Micro economic stabilization is to be attempted first through State Government's initiatives. As the market imperfection is the rule of the day and the purchasing power in the hands of the masses exhaust quickly due to rising prices –dissatisfaction prevails everywhere. The government needs to stand in between – it cannot leave the matter to be settled by the market forces alone now.

The RBI report has neither worked out nor predicted the GDP growth rate for the first quarter but waited for the NSO to come out with the rate. The NSO figures made available on 31st August show an unprecedented decline in GDP at constant prices (2011-12) which is to the tune of 23.9 per cent as compared to last year of the same period. This is too much of a fall and the Modi Government has to bear the brunt of this devastating fall. This is inevitable as almost all the contributing sectors except agriculture are performing negatively during this quarter (April-June). Agriculture sector which contributes around 16 per cent to the GDP however is the only sector that is expected to grow significantly in the current fiscal. As per NSO estimates, agriculture has performed better in the Q1 registering a positive growth of 3.5 per cent over the last year of the same period. The RBI report also attributed this performance of the agriculture sector to the newly inducted tractors by the farmers making hectic purchases from the market. This would impact the economy in two ways, (i) it will lead to further mechanisation of the farm sector contributing higher production and secondly, large scale purchase of the tractors has helped in revamping the Auto market which was otherwise slackening. As per available government statistics, hectic kharif activity this year has already covered sowing of various crops such as rice, cotton, soybean, sugarcane, etc over more than 108 million hectares. With the prediction of normal monsoon and occurrence of early rainfall in June, Government expects that it will not be difficult to meet the production target set for the current year i.e. 298.32 million tonnes (i.e 149.92 million tonnes for kharif season and 148.4 million tonnes for rabi season) and will cross the last year's production of 295.67 million tonnes. However, government expectation appears to be over enthusiastic in view of the fact that (i) targeted area sown for kharif has not yet been reached as yet, (ii) two full months of flood season is still to go and finally (iii) the pandemic has not yet reached the peak while the full rabi season is pending before us. Thus, as we are facing an abnormal year in social health front, we need to be cautious while taking decisions in food front and keep a back up to meet any eventualities.

Manufacturing sector is not consistent in its performance during the quarter mainly because of its slow pace in resuming production process and still falling short of utilizing its full strength. Four reasons could be cited for this- namely- (i) extension of lockdown in most of the industrial locations due to unprecedented rise in COVID-19 cases in various States while in some other locations temporary but regular lockdown for 3 to 4 day's duration are continuing, (ii) labour shortage is still a big problem as migrant unskilled informal labourers have not yet returned, (iii) raw material problem persists due to inter-state restriction of transportation in many areas and (iv) problem of repayment of borrowed fund and the related issues concerning pending decision on further extension of moratorium by the RBI which led to delay in infusing further investment in the units. All these have delayed the take off in the sector. ICRA has already estimated a 40 per cent fall in its volume of production while CARE rated it at 38 per cent fall. The NSO's estimate is also no different as it reveals a 39.3 per cent fall in the output over the last year's same period.

Another notable revelation in this context is the fall in the output of seven core industrial sectors namely coal, crude oil, natural gas, refinery products, steel, cement and electricity in July. The situation as it goes, it is for sure that even in the second quarter this industries will not be able to neutralize the fall that has already been registered. The third quarter will end up adjusting the factors in the changing situation and only in the fourth quarter they will be able to cover up the loss.

The highest suffered sector as usual is the service sector. Formal or informal, the lakhs of labourers /employees engaged in the cultural centres, cinema halls, malls, communication, transport houses, tourism, and education sector are either sitting idle keeping themselves content with whatever is given to them by the employer in the name of the wage or become unemployed. Ceteris Paribus, this situation will continue at least for another three months to come. The decline in this sector during the June quarter is to the tune of 47 per cent compared to the last years Q1. The fall to this extent will not be easy to make up even in the in the current year itself considering the fact that second quarter is coming to an end and most of these establishments are still not opened.

While the problem of migrant labourers has not yet been solved, the construction sector is still operating at the below average level. Suffered by the shortage of labourers, the sector has experienced the highest fall amongst all the sectors with 50.3 per cent.

The service sector is also overcrowded with self-employed and casual employees most of whom are yet to resume their works. The self-employed engaged in vending business have faced with extreme competition with a completely new set of vendors who have taken over their place in their absence by serving online orders thorough the institutions like sweigy, jomatos etc. This will create another set of unemployment in the economy.

Government have already pumped Rs 20 lakh crore stimulus special economic packages as a correctional measure for revival of the economy. This huge amount of fund (10 per cent of GDP) is additional revenue outlay and is capable to generate acute inflation in the economy. Government needs to handle this situation with utmost care so that inflationary situation does not go out of hand.