Reading the fine print of 13.5% GDP growth

The June quarter gross domestic product (GDP) figures are an excellent example of this.

The real GDP for the period was ₹36.85 trillion. The real GDP adjusts for inflation and was 13.5% higher than the GDP for the same period last year. Forecasts of most economists said that the growth would be higher than 15%. The double-digit growth has been primarily because of the second wave of covid having depressed economic activity from April to June 2021.

You might also like

IT firms turn up the heat on moonlighters

What’s eating into India Inc’s earnings

Behind the surprising trade surplus in auto components sector

Further, the GDP for the June quarter was 36.3% higher than the GDP for the same period in 2020. However, the point to remember is that the country was under a lockdown during April 2020 and a good part of May 2020, which had depressed economic activity.

Hence, the right way to look at the GDP for the June quarter is to compare it with the June quarter of 2019, before the pandemic started. The overall GDP growth over a three-year period since then is 3.84%, implying annual growth of 1.26%. Hence, the economy has barely grown over the last three years.

In comparison, if the economy grew 6% per year, the GDP for April to June would have been ₹42.27 trillion against the actual ₹36.85 trillion. The difference of ₹5.42 trillion is the economic opportunity cost of covid.

One popular way of calculating the GDP involves summing private consumption expenditure, investment, government expenditure and net exports (exports minus imports). In India, private consumption forms a significant part of the GDP and has taken a beating because of the negative impact of covid. Nevertheless, over three years, it has grown to ₹22.08 trillion, meaning a little more than 3% per year.

This tells us that a large section of the population is still stretched on the spending front. This can be gauged from several consumption indicators. Two-wheeler sales during the June quarter were significantly higher than the same period in 2021 and 2020, but were lower than the sales in each of the three-month periods ending in June from 2014 to 2019.

Data from Nielsen IQ suggests that volume growth for fast-moving consumer goods (FMCG) firms continues to remain in negative territory, with a contraction of 0.7% during the three months ended 30 June. This means that FMCG firms are selling fewer units of their products than before.

The fact that rural India remains in trouble can also be gauged from work demanded under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). During the three months to June, work demanded has been around 20% more than that during the same period in 2019.

In addition, the huge difference between imports and exports has dragged GDP growth below what economists were expecting. The exports for the period were ₹8.45 trillion while imports were ₹11.43 trillion, leading to a net exports figure of (-) ₹2.98 trillion. This is the highest the deficit has ever been and it is a negative entry in the GDP calculation. This has dragged GDP below the levels that had been forecast. The imports have been very high, primarily because of the high prices of oil and other commodities.

Even so, things are improving, albeit gradually. The contraction in FMCG volumes has been reducing. Two-wheeler sales are going up. Further, the work demanded under MGNREGS has also been coming down. Also, investments seem to be picking up, albeit at a very slow pace. Now only if the Russian invasion of Ukraine ended.

Elsewhere in Mint

In Opinion, Amit Kapoor & Bibek Debroy write on how to make India better at competitiveness. Was Gorbachev a traitor, misfit or Soviet visionary? Sreeram Chaulia answers. Anurag Beher argues the state can run schools well. Long Story tells how the frustrating IBC process is driving away investors and funds.