Chandigarh |
September 14, 2020 12:58:30 am
Rajinder kumar
(Written by Rajinder Kumar)
The 23.9% contraction of the real Gross Domestic Product (GDP) of the Indian economy in the first quarter (Q1) of the current financial year compared to Q1 last year, as shown in the GDP data published by the National Statistical Office (NSO) on August 31, has become a point of discussion and concern. In absolute numbers, this contraction means that India’s real GDP has dropped to Rs 26.90 crore lakh in the first quarter of this fiscal year from Rs 35.35 crore lakh in the first quarter of last year.
These data are being interpreted in different ways by different sectors of society, think-tanks, academics, politicians, economists, businessmen and people in general, both inside and outside the country, but most of the interpretations are negative since they tend to be victims of seeing only the plausible. However, before jumping to a quick conclusion and / or forming a negative opinion on the whole matter, one should examine all the facts and figures to avoid falling into the trap of any irrational conclusions.
The most important point to keep in mind is that the previous economic contraction has not occurred due to any structural weakness in the economic fundamentals of the Indian economy; rather, this has emanated from the conditions created by the unprecedented pandemic and the strict blockade imposed across the country. This line of argument must be seen from the fact that the main cause of the economic slowdown and contraction is the contraction of demand that is clearly reflected in the low private consumption spending that fell 26.7 percent in the first quarter of this year. In terms of Gross Value Added (GVA) for the first quarter of the current fiscal year, the steepest fall was recorded in the construction sector (-50 percent) and commerce, hotels, transport communications and related services. broadcasting (-47 percent). The very inherent nature of these sectors is such that these sectors have endured the direct restrictive impact of the harsh conditions engendered by the Covid-19 pandemic and the ensuing lockdown.
Here, the bottom line is that the economic slowdown in the Indian economy is not tangential to the current special circumstances, but it is the core.
Furthermore, when evaluating these figures, due attention should be paid to the fact that due to the tighter and timely closure conditions imposed by the government, the pandemic-induced death rate in India is one of the lowest in the world. world. The death rate in India was 1.78 percent as of August 31, compared with 3.04 percent in the United States, 12.35 percent in the United Kingdom, 10.09 percent in France. , 1.89 percent in Japan and 13.18 percent in Italy.
Now look at the economic situation in other countries. The problem of the economic slowdown is not unique to the Indian economy; rather, other major countries in the world have experienced an economic contraction similar to that of India.
Around the world, data from April to June, point-to-point, shows a significant contraction as a result of the pandemic. The US economy, for example, has contracted by 9.1%, the United Kingdom by 21.7%, France by 18.9%, Spain by 22.1%, Italy by 17.7% and Germany by 11.3 % and Japan 9.9%. Overall, the euro area has contracted by 15.0%.
On the other hand, there are visible “green shoots” in the economy. The agriculture sector has shown resilience, posting growth of 3.4 percent in the first quarter of the current fiscal year, which is 0.4 percent higher than the quarter last year. The eight main industries of coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity, which comprise 40.27 percent of the weight of the elements included in the Industrial Production Index (IIP), show positive signs in cumulative terms. of steady decline in the contraction of the negative index that went from -37.9 percent in April to -22 percent in May to -12.9 percent in June and -9.6 percent in July in the financial year in progress.
In addition, sales of passenger cars have increased to 1.83 lakh units in July compared to 1.43 lakh in March this year. There are visible signs of revival in rural demand in terms of growing sales of small cars, two-wheelers and sport utility vehicles and fertilizers. The increase in the registration of commercial and agricultural tractors to 66,061 units in August from 52,362 units in March, representing an increase of 26.16 percent, is also an indicator of the reactivation of rural demand.
Similarly, rail freight traffic, rail passenger bookings, domestic aviation passenger bookings, steel production and cement production have shown immediate positive signs of growth after unlocking.
All these economic indicators show that the current economic slowdown is associated more with the current unprecedented circumstances than with serious structural problems in the Indian economy.
(The author is BBMB Financial Advisor and Account Director)
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