How's our GDP doing?

As we seem to have passed through the worst phase of the deadly second wave of Covid-19 and as the number of active cases in the country dropped to around half of what it was at its worst, there is one more statistic of equal national importance, if not more, which needs to be observed - India’s GDP.

On Monday, the National Statistical Office (NSO) released the results of India’s economic performance of the fourth quarter of FY 2021 i.e. from January to March. India’s quarterly Gross Domestic Product (GDP) expanded by 1.6% over the same period last year. This growth is in line with what analysts had predicted about the quarter.

While 1.6% seems like a minuscule number, especially for an emerging economy of our size, it is actually good news for our country. Here’s why- Last year in March when the government imposed a strict nationwide lockdown in the country, our already faltering economy went into a downturn. Our quarterly GDP for the first quarter from April to June 2020 contracted by 23.9%, as businesses were shut down and movement of people was banned. The lockdown gradually eased but not altogether in the second quarter that ended in September. The GDP for that quarter contracted by 7.5% over the same period the previous year. Technically, this led us into a ‘recession’ as we faced an economic contraction for two successive quarters. Later, in the next quarter that ended in December, the lockdown was eased even further, businesses started reopening and factories started producing goods. The GDP for the third quarter finally registered a positive growth, albeit of just 0.4%. And in the fourth quarter, our economic activity gained momentum. People started going out and thus consumption increased. Now a growth of 1.6% doesn’t sound too bad, right? Moreover, India’s Gross Value Added (GVA), which is a better measure of economic activity, increased by an even better 3.7%.

Mathematically, GDP is calculated as the sum total of private consumption, private investments, government expenditure and net exports. Of these, private consumption increased by 2.7% as people started spending more, but the growth in GDP was mainly due to increased private investment and government spending. As economic activity rebounded, businesses started expanding their presence, expecting a higher demand for their goods and services in the future. This led to India’s private investments expanding by 10.9%. Moreover, to help the people, businesses and the whole economy to get back on track, the government started spending a lot more. Government expenditure in this quarter increased by a whopping 28.3%!

The results of the fourth quarter of FY21 led to India’s annual GDP for the entire financial year of 2020-21 to contract by 7.3%, as compared to a pre-pandemic growth of 4% in FY 2019-20. Even though a contraction of 7.3% is India’s worst economic performance in 40 years, it is still better than the 8-10% contraction predicted by most analysts. And positive growth rates in the third and fourth quarters mean that India’s GDP for the second half of the year recovered back to pre-pandemic levels.

However, this is no reason to celebrate. The GDP results may have seemed benign because the second wave did not drastically affect the GDP numbers of the March quarter. But it is expected to have an effect on the results of the ongoing quarter i.e. April to June. And the overall health of the economy is not just defined by the GDP, but a lot of other statistics. For instance, our inflation rate (Wholesale Price Inflation) is at a 11 year high of 10.5%, and is expected to prop up the Consumer Price Inflation in the near future directly affecting the common man. Urban unemployment rate soared to 18%, the highest in a year, due to concentrated lockdowns in urban areas. And due to increased government spending to revive the economy and poor tax revenues, the government’s fiscal deficit increased to 9.3% of GDP, which would lead to more borrowing by the government and thus less money available for borrowing by private businesses.

So in short, our economy is in a bad shape and we don’t know what it is going to be like in the future. The government has tried to revive the economy by schemes to expand credit for small and affected businesses, by spending on infrastructure, increasing wages for MGNREGA workers, direct-benefit transfers for the poor, etc. But the economic performance for the ongoing year will be uncertain for the only reason that the impact of the virus is uncertain in the near future. Scientists have predicted that there will be a third wave, but no one knows when and how much it will affect us. Until then, the most effective tool, for the economy and for us, is vaccination.