Home Editorial The Great Recession?: On Falling GDP Numbers

The Great Recession?: On Falling GDP Numbers

by Editorial Team
The Great Recession - On Falling GDP Numbers

‘Torture the data enough and it will confess to anything’ doesn’t seem to hold good anymore.

Latest data by the Ministry of Statistics (MoSPI) notes that GDP contracted by a record 23.9% in the April to June quarter (Q1 FY 2020-21) in comparison to the same period last year. This is the sharpest decline since quarterly figures were first reported in 1996. It is also the first official indication of the toll the prolonged lockdown took on our economy. Disproving gravity, some might argue, would be an easier task than making these numbers look good.

On the supply side, the quarterly estimates for Gross Value Added by all industries saw a sharp decline. The only exception was a 3.4% growth in agriculture driven by a bumper rabi harvest and an easing lockdown over this quarter. Still, this growth cannot compensate for the historic declines in hospitality and communication services (-47%), construction (-50%) or manufacturing (-39%).

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While the pandemic induced lockdowns have affected all major economies, India’s lockdown was one of the most stringent. Given that the economy was struggling even before the pandemic, a harsh, overarching lockdown was ill-conceived. The relief package that the Centre announced was an eyewash and the states were left to dig their coffers to deal with the pandemic. The 16% rise in government spending that this data shows came largely from emergency expenditure by the states and even this money might run out by the end of this quarter. Paying the states their GST dues- that are legally entitled to- could be a start.

What’s more worrying than these numbers themselves is the fact that they are far from accurate. The estimates ignore the informal sector which employs around 94% of the workforce and contributes almost half of the total output of the economy. On top of this, the Ministry press note admits that data collection was hampered by the lockdown and usual data sources were “substituted by alternatives like GST, interactions with professional bodies etc. and were clearly limited.”

Even as they stand, the numbers point to an erosion of consumer and business confidence. Public spending as well as investments will continue to remain low in the following quarters. Many will lose their jobs- if they haven’t already- and those trying to get into the labour market will fail to find employment. Poverty rate might increase, though it is hard to guess by how much.

There’s still a lot that can be done before the damage becomes irreversible. MGNREGA days can be increased and an equivalent scheme launched for urban areas, direct transfers can be made to Jan Dhan accounts, taxes can be reassessed and economists could be paid heed to. The momentum of the Indian economy is gone and its manufactured glory days are over. The Centre must get to work now.

All editorials are written by Tushar Kohli and his small team and represent the collective view of the Editorial Team

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