BackA disconnect that shows the real state of the country’s economy
Disaggregated data contradicts the rosy picture that national accounts paint of our performanceIt’s premature to conclude that a recovery is underway, as our GDP rise in 2020-21’s third quarter was on a very low base. Also, other data sets reveal that distress remains widespread.
PremiumEstimates of growth in the third quarter of 2020-21 along with advance estimates of the full year were released last month by India’s statistics ministry. These showed that the country’s gross domestic product (GDP) increased 0.4% year-on-year in the October-December quarter, thus breaking the previous two quarters’ trend of declining GDP. Along with this, the advance estimates also revised the full year’s decline in GDP to 8% from 7.7%. That the economy had finally moved into positive growth territory was seen as a sign of economic recovery, with many claiming that the worst may finally be over as far as the covid pandemic’s impact is concerned.
Unfortunately, such a conclusion is based on nothing more than a statistical illusion. The positive growth on a year-on-year basis is largely a result of the weak output of the third quarter of last fiscal year, when growth in gross value added (GVA) was the lowest since the introduction of the new series of national accounts. In fact, GVA growth in the third quarter of last fiscal was the lowest in more than a decade. Given that the economy was already in the midst of a severe slowdown, even the next quarter is likely to show expansion, but this is largely a result of a low base. It is not a recovery in any true sense.
A sectoral break-up of growth suggests a sharp recovery in manufacturing, utilities (electricity, gas, water supply and other services) and construction. All these three sectors, incidentally, had seen negative growth in last fiscal year’s third quarter. Of these, manufacturing continued to show a decline in the fourth quarter of last fiscal, while utilities and construction had recovered by then. On the other hand, hospitality, trade, transport and communication, which together form the largest provider of employment after agriculture, showed negative growth of 7.7% over last year. Another reason to be cautious about these estimates is the fact that most of these numbers are based on early estimates of corporate sector performance. These are likely to be revised downward, once data from India’s large informal sector is factored in.
But the most important reason why one should exercise caution over claims of an economic recovery is a disconnect between disaggregated data of several key indicators and aggregate data from our national accounts. A manifestation of this are soaring stock market indices at a time when data on real wages for the third quarter suggest a decline. Labour bureau data available until November 2020 shows that real wages are not only lower compared to last year, but also compared to two years ago. Clearly, the distress in rural areas is real and not just a statistical illusion, and this has been so since before the pandemic.
We now also have data on employment from quarterly rounds of the Periodic Labour Force Survey (PLFS). Data for the April-June 2020 quarter, released recently, confirms the extent of job losses and rising unemployment pointed out by other surveys, such as the tracker of the Centre for Monitoring Indian Economy (CMIE). According to these, 25 million workers in urban areas lost their jobs between the January-March 2020 and April-June 2020 rounds following India’s lockdown restrictions on economic activity. The number of unemployed in urban areas during the same period increased from 16 million to 35 million. These estimates are only for urban areas, but combined with rural wage data, they suggest a sharp deterioration in living conditions and the extent of livelihood losses due to the pandemic. The unemployment rate of the entire population rose from 9% to 21%, and of the 15-29 age group, from 21% to 35%. That is, every third youth in the country’s labour force was unemployed.
This disconnect is not merely a statistical phenomenon, but a reflection of the nature of structural inequality in society and the economy. The economic policy followed in the past three decades, the last one in particular, has deepened inequalities. Sops, subsidies and bailouts to the corporate sector have protected their profits, while the cost of reforms, be it demonetization or adoption of the goods and services tax, has mostly been borne by India’s unorganized sector. The slowdown and pandemic have only exacerbated inequality, with profits of the organized sector rising even as distress in the unorganized sector increases.
This is a recipe for inequitable growth that causes instability and social unrest. The priorities of our economic policy must shift from simply chasing growth to correcting imbalances that result in grossly uneven outcomes.
Himanshu is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi
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