Focus on returning to pre-pandemic growth levels
India’s GDP growth contracted by 7.5% in Q2 as against the terrifying 24% decline in Q1, implying that the wrenching times could well be behind us even if we are in a recession. If the nationwide lockdown reduced the country into an economic wasteland, the stronger than expected rebound reinforces hopes of a partial V-shape recovery.
On a sequential basis, growth stood at 23%, but experts aren’t cock-a-hoop about it, projecting an uneven pace of recovery as the baseline scenario till March. While festive sales momentum, GST collections and others point to rising demand, the key lies in investments and exports, which continue to sulk. Given the limited government spending headroom, recovery prospects squarely hinge on an uptick in private consumption. But urban and rural consumers seem extreme opposites, with the former displaying weak confidence, while the latter are showing resilience.
The demand side saw material improvements in manufacturing, utilities and construction, though only manufacturing returned to positive growth. Despite agriculture’s stellar performance, India figures among the slowest-growing economies that announced data for Q2. China, on the other hand, is an outlier, registering 4.9% growth. For the full fiscal, growth will likely contract by 9.5% as per the RBI.
That said, nominal GDP contracted by 4% compared to over 20% in Q1 and it’s logical to expect a strong rebound in FY22. Undeniably, this recession is unique for two reasons. One, the slump in GDP growth was deliberate, with the government forcing people to stop in their tracks to rescue themselves and the rest of us. Two, because the economy was subjected to a harsh hibernation as against the ordinary course of growth stimulation, the ongoing contractions aren’t strictly comparable with pre-Covid quarters.
Why apply normal metrics to such abnormal times? It’s clear that FY21 is a lost year and instead of unhelpful speculation, the focus should be on returning to pre-pandemic growth levels. But for that, the only desirable economic shot in the arm alongside the vaccine jab for India is fiscal stimulus. And in big doses.