The collapse of gross domestic product (GDP) growth by 23.9% for the period from April to June is not a surprise. The economy was under strict lockdown for most of the time to contain the pandemic. However, a little research turns up interesting trends. Mint take a look.
What does the GDP figure highlight?
One way to measure GDP is to add up private consumer spending, government consumer spending, investment, and net exports (exports minus imports). In Q1FY21, spending on private consumption contracted 26.7% and investment 47.1%. With limited physical mobility, discretionary spending took a back seat. The situation worsened as revenues fell. With migrant workers returning home, infrastructure projects went awry, causing a large contraction in investment. It should be noted that private consumption and investment are two of the main contributors to GDP.
How did public spending fare?
In recent years, public spending has constituted between 8% and 13% of the general economy (GDP). From April to June, it reached around 18.1% of GDP, the highest in more than 19 years. Public spending during the quarter increased 16.4% to ₹4.87 trillion. This additional spending essentially ensured a lower contraction of the economy. If we leave public spending out of the calculation, what we are left with is the non-governmental part of the economy, which is the majority of the economy. This contracted by a whopping 29.3%, far more than the overall economy.
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What was the trend in non-government GDP so far?
The growth of the non-governmental part of GDP had already decelerated in recent quarters. The spread of the coronavirus pandemic and the resulting lockdowns, which disrupt economic activity, have only exacerbated this problem. Public spending can help, but for the economy to recover, the non-governmental part must do well.
Can other trends be seen in GDP printing?
Exports contracted 19.8% during the period, while imports fell 40.4%. The collapse of imports was due to two reasons. One is that oil imports, in value, fell by 62.8%, due to a drop in oil prices. The total amount of imported oil also decreased. With the blockade during the period, mobility was limited and this led to lower oil imports. Imports of goods other than oil, gold and silver tumbled by as much as 44.1%, showing a huge collapse in overall demand from private consumers.
What does this mean in the big picture?
Net exports are a negative entry in the overall GDP calculation, because imports tend to be more than exports. However, due to the collapse in consumer demand, the number of net exports during April to June was in positive territory at ₹75.675 crore. This is the first time in 16 years that such a phenomenon has occurred. Ironically, it ended up driving overall GDP.
Vivek Kaul is the author of Bad Money.
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