The economic recovery: Not so much

The pathetic scenario generated by the advance estimates of Ministry of Statistics and Programme Implementation (MOSPI)
Representational image

Representational image

Udayan Hazarika

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

The Government of India's National Statistical Office under Ministry of Statistics and Programme Implementation (MOSPI) has published its first advanced estimate of National Income 2020-21 on 8th January 2021 indicating the dismal performance of each and every sector of the economy. The fall in the demand side is mostly influenced by the poor performance of the service sector followed by manufacturing sector. Government's ignorance and inexperience as to how to deal with this collapsed sector after the lockdown is the main reason behind this. Time and again we have highlighted in this column that the service sector recovery will not be an easy task for India, especially when millions of wage earners have lost their jobs for various reasons. It is now obvious that the fall that was generated by the lockdown will require at least three more quarters of a year to come up to the pre-Covid level. The last estimates of MOSPI in terms of second quarter performance showed a contraction of 15.6 per cent during the second quarter compared to the same period of last year. But the present advance estimate for the year 2020-21 as a whole shows a contraction of 18.3 per cent compared to the last year. Already first half yearly (H1) contraction (April-September) comes to 31.52 per cent indicating thereby that if the yearly contraction as calculated by the advanced estimates has to be 18.3 per cent than the second half yearly (H2) 'growth' must be around 13.2 per cent. This is a difficult proposition to achieve a growth to the tune of 13.2 per cent during the remaining period of this fiscal itself which has so far remained in contraction stage till its third quarter. Similar, is the case with construction sector. As against 1.3 per cent growth in the last year, the current year's contraction in this sector is estimated at 12.4 per cent. This is against the huge half-yearly (April-September) contraction of 30.2 per cent. Thus, to reduce the contraction to the level of 12.4 per cent the sector should grow by at least 17.8 per cent in the remaining quarters which is simply impossible. Moreover, the first quarter contraction was so high (50.3 per cent) that it will wipe out any positive performance if achieved in the year. The financial, real estate and professional service sector although estimated marginally higher with 1.4 per cent expansion, yet the in absolute term, the value of expansion is only about Rs 53,871 crore which is quite insignificant for a sector involving real estate. Considering the present situation, it is easier to go down from this position than to go up. A one per cent expansion will require a value of more than Rs 50,000 crore. Thus, on the whole, the situation concerning the service sector is very fragile and can be termed as precarious. The sector alone is mainly responsible for pulling down the gross value addition (GVA) of the economy which is slated to go down by 7.2 per cent contraction as a whole.

In case of the manufacturing sector the contraction is estimated at 8.0 per cent. The Q2 performance however showed a recovery although to the strength of only 0.6 per cent an overall contraction would mean a failure of the economy to neutralise the first quarter's magnificent fall of 39.3 per cent. As per available data, the third quarter performance was better than the second quarter indicating thereby an expansion. The IHS Markit India Manufacturing PMI, which indicates an expansion of the sector once it exceeds the limit of 50, shows an average increase from 51. 6 in the second quarter to 57.2 in the third quarter; but on monthly basis, it has not changed much from 56.3 in November to 56.4 in December. There has been a claim of improvement in market conditions and strengthening of demands right from the beginning of the quarter by the Government. But with the above PMI and the gradually falling employment situation, this claim cannot sustain.

Only the agriculture and allied sector remained positive right from the pre-Covid period. The GVA of the first quarter (3.4 per cent) has in fact surpassed the GVA in the same period last year (3.0 per cent). However, the advanced estimates show a marginal fall in the output from 4.0 per cent in the previous year to 3.4 per cent in the current year. This is despite RBI's high hope that this year's production will surpass last year's performance. The advanced estimates even showed a contraction in the Production of rice to the tune of 1 per cent compared to last year. Increase in area sown does not necessarily lead to increase in production. Area in case of oil seeds, pulses, mustards have increased significantly no doubt but to expect a bumper crop we have to wait till harvesting. Another setback is in respect of the paddy coverage in the current Rabi season which is lagging behind the last years acreage of 15.47 lakh hectare by more than 4 per cent.

On the expenditure front, all the components except government final consumption failed to make any headway. Private consumption failed again to pick up proving that the government policy in this front is not working effectively. Loss of purchasing power due to loss of jobs resulting from lockdown could not be compensated till now. The advanced estimates show a decline to the tune of 9.5 per cent when the private final consumption is compared to last year's figure. On the other hand, government final consumption although estimated to picked up, yet the rate proposed is weak which is to the tune of only 5.8 per cent above the last year's amount. There has also been significant fall in the gross fixed capital which is to the tune of 14.45 per cent in the value compared to the last year. This is on one hand indicative of the fact that recession has gripped the sector with cutting down of investment by the firms considering the uncertainties about the volume of output. As a result, its contribution to the GDP has sharply fallen to 27.6 per cent as against 29.3 per cent last year and 31.9 per cent in 2018-19. In the external sector there is a mismatch but in favour of India as exports picked up. On the whole the real GDP is estimated at Rs 139.40 lakh crore compared to Rs 145.66 lakh crore of the last year's resulting in a contraction of 07.73 per cent as against the growth of 4.2 per cent last year.

Although the scenario presented by MOSPI is based on the projected figures, setting aside some percentage as estimation error, we can very welcome to a conclusion that India's economic situation is undoubtedly grave. Government failed to handle the situation and it is necessary that government should consult the experts experienced in handling such situation. Government must rise above the party level to save the economy.

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