Illusion of economic revival on basis of misleading data may lead to erroneous decision-making, complacency
Comparing economic data of first quarters of FY 2020-21 and FY 2021-22 to project a rosy picture of ‘economic revival and growth’ is fallacious in more ways than one
The economic data released by the National Statistical Office (NSO) for the first quarter from April to June for the financial year 2021-22 seems to show that economic recovery is gathering momentum, but the Modi government must avoid creating an illusion of growth and revival on the basis of a misleading comparison that the GDP of the country has grown by a record 20.1 per cent. This may create a dangerous level of complacency and lead to wrong decisions by the stakeholders which may ultimately harm the country.
The comparison has been made with the same period last year, 2020-21, when the country was under general lockdown. In April and May, all the economic activities in the country were shut down except the emergency services and activities. Unlocking of the economy had begun from June 1 in a phased manner, and only a few economic activities were allowed to commence in the month of June. Not only production but also the supply chain had suffered an unprecedented disruption, and the market was not yet fully opened.
As such, a comparison of the economic performance under such a background of low base of growth last year during the first quarter has obviously given a rosy picture of economic revival and growth in the first quarter of the current financial year, which rose 20.1 per cent.
The comparison is misleading on another account too. The country was undergoing the disastrous second wave of the pandemic, but this affected human lives more than the economy, because the lockdown was not pan-India but localized, even though almost all the states put severe restrictions on movement of the people.
Economic activities were allowed to continue with limited restrictions on logistics and the markets. Supply and production chain was not disrupted to the level of the last year. It helped the economic wheel to move, albeit slowly.
However, it resulted into only 1.6 per cent improvement in growth compared to the growth recorded in January-March 2021, the last quarter of the financial year 2020-21. Such a minor improvement was not a big deal compared to the figure 20.1 per cent of growth when compared with the low base of the last year for the corresponding quarter that had suffered a record contraction of 24.4 per cent. The actual growth for the first quarter was even lower than the Reserve Bank of India’s forecast of 21.4 per cent made in June 2021.
When we compare the present growth figure with the pre-pandemic year’s 2019-20’s first quarter, we come to know that our growth is still lower by about 10 per cent, even though the growth rate in the first quarter of 2019-20 was only 5.4 per cent compared to the growth rate of 2018-19.
In absolute terms, the GDP at 2011-12 constant prices in first quarter of 2019-20 was Rs 35.7 lakh crore, Rs 27 lakh crore in the same period in 2020-21, and Rs 32.4 lakh crore in the first quarter this year, i.e. lower by Rs 3.3 lakh crore compared to the first quarter of 2019-20.
It goes without saying that we need to interpret the data more carefully, and project it in such a way that we should neither create an illusion nor douse the hopes of the people and negatively impact their morale for economic revival and growth prospects, although they are still uncertain according to almost all economic analysts, especially because of the threat of impending third wave of the pandemic.
In fact, the data shows a rebound in manufacturing and construction, but only if we compare it with the lower base of the last year. Agriculture is an exception which recorded robust growth as it was in the last year, which remained resilient throughout the last year, and with good rainfall this year, the trend is most likely to continue, irrespective of the threat of the pandemic. We must keep in mind that our economy is still to recover the ground that we have lost after the pandemic struck the country last year.
The data for April-June 2021-22 can at best be taken as an indicator of recovery and growth, though according to estimates of all national and international institutions, India can return to the pre-pandemic level of growth only in the financial year 2022-23. We have miles to go before that happens, since several sectors of the economy, particularly in the crucial service sector, are lagging behind and are yet to recover fully.
The Chief Economic Advisor of the Modi government, Krishnamurthy Subramanian, has highlighted the 20.1 per cent of growth, but it aims only to conceal the reality on the ground level and the dismal performance of the government, causing unprecedented misery for the people. He has been saying all along that our fundamentals of the economy are strong that and we will have ‘V-shaped’ growth, but the credit for the strong fundamentals goes to the governments that ruled India before Modi-led BJP came to power.
It should also be noted that we fell into sequential slowdown of 16.9 per cent over the last quarter of the financial year 2020-21 and had a shortfall of 9.2 per cent relative to the pre-pandemic level of growth.
Before claiming to have ‘one of the highest level of growth in the world’, we must also remember the United States’ growth has returned almost to the pre-pandemic level while India is likely to take two years more at the present level of economic and health measures taken in response to COVID-19.
Views are personal