The Office for National Statistics released the provisional estimates of quarterly estimates of national income and GDP on May 31, 2022. Addressing the media, the chief economic adviser was subdued and cautiously optimistic. As most economists know, they are aware that the Indian economy is not out of the woods yet.
worse and worse
The worst news is that the size of the economy (Rs 147.36 lakh crore) at constant prices as on March 31, 2022 was almost equal to that of March 31, 2000 (Rs 145.16 lakh crore), which means we are walking and standing in one place. to happen! However, individual citizens have become poorer as the per capita income has come down from Rs 1,08,247 to Rs 1,07,760 in two years.
The next bad news is that the graph of quarterly GDP growth in 2021-22 is a sloping graph: the four quarters are 20.1, 8.4, 5.4 and 4.1 percent. There has been no sharp increase in terms of output (value addition). In the pre-pandemic year of 2019-20, the GDP in the fourth quarter was Rs 38,21,081 crore, and we crossed that number only in the fourth quarter of 2021-22, which recorded Rs 40,78,025 crore.
There is no room for boasting that India is the fastest growing large economy with 8.7 per cent. that pride has no meaning given inflationUnemployment, the number of people below the poverty line, the prevalence of hunger, declining health indicators and declining learning outcomes. The growth rate of 8.7 per cent, which may sound impressive, has to be seen in perspective. Firstly, this is on account of negative growth of (-) 6.6 per cent in the previous year. Second, when China grew by 8.1 percent in 2021, it added USD 2,600 billion to its GDP in twelve months (at current prices), while India grew by 8.7 percent in 2021-22 in twelve months. It only added 500 billion USD to its GDP. (at current prices).
outside world
Once we calm down, we can look at possibilities for 2022-23 and beyond. Attached to ourselves, we forget that there is a world outside. We need the world’s markets, products, capital, technology and innovation. The world’s economies are under stress. Inflation and interest rates are rising in the United States and demand is declining. Repeated lockdowns will put pressure on China’s GDP growth. Rising gas prices have reduced the purchasing power of Europeans.
of RBI monetary policy committee Noted (May 4, 2022) that the IMF has reduced the global growth rate from 4.4 percent to 3.6 percent in 2022 and the WTO has reduced the world trade growth rate from 4.7 percent to 3.0 percent. The IMF has projected inflation at 5.7 percent in developed economies and 8.7 percent in developing economies. The MPC has identified “deteriorating external environment, higher commodity prices, persistent supply constraints and ….volatility spillovers from monetary policy normalization in advanced economies” as formidable headwinds. I doubt anyone in the government is listening.
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Good diagnosis, no treatment
RBI’s monthly report (May, 2022) has identified five important elements to revive animal spirits and accelerate development:
- private investment
- high government capital expenditure
- better infrastructure
- low and stable inflation
- macroeconomic stability
Of the five elements, the government alone has control over ‘government capital expenditure’, but its ability to invest large amounts in capital works this year will be severely restricted because of post-budget actions such as cutting fuel taxes, subsidies. Increase and increase in welfare expenditure. Of the rest, private investment will not pick up pace as long as there are supply constraints and unutilized capacity. For foreign investors, Cairn, Hutchison, Harley-Davidson, General Motors, Ford, Holcim, Citibank, Barclays, RBS and Metro Cash & Carry have left or are leaving India. Any improvement in infrastructure would require radical changes in the processes involved in tendering, pricing, execution and accountability – all of which are missing today. We are adding ‘quantity’ to our infrastructure but not ‘quality’. And the past record of the Modi government shows that it is clueless on inflation and macroeconomic stability.
Above all, one can sail a ship in the early hours of the water only if the captain and the comrades share team spirit and common goals. There is no consensus today between the Center and the states on important issues. GST has broken the trust between the central government and the state governments. Add to that the devious acts done by the governors and the blatant abuse of central agencies against every opposition party (see the unprecedented spectacle of state ministers being arrested by central agencies).
There is an even bigger problem. No country can become an economic superpower if the labor force participation rate is 40 percent. A large part of India’s working age population is either not working or not looking for work. And despite educating more girls, the LFPR of women is lower at 9.4 percent. In addition, the current unemployment rate is 7.1 percent.
We have a sick economy. We have an excellent diagnosis. There are medicines in the pharmacy. But, working doctors are either quacks or don’t care whether the patient is dying a slow and painful death.