Centre must reset policy focus to push consumption
The Indian economy managed to wring a 1.6% growth in Q4 of FY21, but a closer look reveals some dim details. First, growth was partly due to Q3’s low base. On a sequential basis, the gap between headline and core GDP (excluding agriculture and government spending) widened, with the latter contracting by 1.8% in Q4, laying bare the dismal contribution of the private sector that refuses to budge. Now, all we need is a mere 5.5% growth rate that will add the lost Rs 10 lakh crore to national output and put us back at preCovid levels. But what’s important to note is the lost 24 months and why the rebound needs to be faster than the ordinary course with all components—consumption, expenditure and investments—playing their part.
Such collective contribution is essential as the second wave and the ongoing lockdowns have already created a break in the growth normalisation process. Several economic indicators are pointing towards pushback in recovery. While mobility and consumption indicators are turning in a sequential decline, others like auto sales, PMI manufacturing and services, E-way bills, and power consumption have all moderated over the past few months. Still, all estimates point towards lower growth in Q1, and not the growth contraction seen last year. That said, the important question is whether consumption demand will make a comeback this time around.
For one, the virus spread in rural areas is pervasive, adding to rising urban unemployment. While some are being absorbed under the MNREGA programme, their earnings will be much lower. As if income losses aren’t enough, some of them (even urbanites) endured an obscene rise in healthcare expenses, which means discretionary spending will take a severe knock. Moreover, the demand surge was accompanied by rate cuts last year, but there’s no such luck this time, with dangers of rising inflation lurking around. In the event of consumption demand remaining weak, government spending must come to the rescue. The Centre, which till now has refrained from giving a demand-side push, must reset the policy focus to push consumption up to avoid suboptimal growth in the future.