The rate of contraction of the Indian economy slowed significantly in the second quarter, better than estimated by most economists, not because of government support, but despite the fact that the Center cut its spending, especially capital spending. , considered to stimulate the growth of the economy.
In the September quarter, the GDP contraction reached a negative 7.5%, improving from a record low of negative 23.9% in the June quarter, mainly due to the surprising resistance exhibited by the industrial sector. However, public spending represented by “public administration, defense and other services” slowed further from its June quarter level of negative 10.3% to negative 12.2% in the September quarter.
From the demand point of view of the GDP calculation, the contraction of public spending is more evident since the “Government final consumption expenditure (GFCE)” contracted by 22.2% in the September quarter from September 16 , 4% growth in the June quarter. In nominal terms, this is ₹1.6 trillion drop in public spending in the second quarter from the level of the first quarter, including both central and state spending.
This means that, while the government was unlocking the economy starting in June, signaling the resumption of private production, consumer activities, and announcing a series of “stimulus” measures, it was actually reducing its own budgeted spending rather than supporting the economic recovery process. It is now clear that if the government had at least maintained its pace of budgeted spending in the September quarter, the recovery in the second quarter would have been faster.
While the government’s own revenue revenue came under great pressure due to the pandemic, that could not have been an excuse for the cut in public spending in the September quarter. In May of this year, just three months after presenting the Budget, the government had increased its debt schedule ₹4.2 trillion to ₹$ 12 trillion for fiscal year 21 to secure your spending committed to the budget for fiscal year.
CGA data released on Friday shows that the center’s spending cut continues into October, which may well be reflected in the third-quarter GDP figures to be released in late February next year. According to CGA data, total spending was 54.6% of the FY21 target through October compared to 59.4% during the same period in FY20. Crucially, capital spending that has a multiplier effect on GDP growth was only 47.9% of the fiscal year 21 target in the first seven months of the fiscal year, compared to 59.5% during the same period in the fiscal year. fiscal year 2020. What’s more puzzling is that while it was still under-utilizing its capital spending, the Finance Ministry in October, as part of its second stimulus measures, announced additional ₹Rs 25 billion spent on roads, defense infrastructure, water supply, urban development, defense infrastructure and domestically produced capital equipment.
With the economic recovery faltering in October, as evidenced by the deepening contraction in the core sector comprising eight infrastructure sectors, the government cannot take a sustained economic recovery for granted. Although the center, by its own admission, is “fiscally conservative” and unlikely to provide much of a stimulus to the economy, it should at least support the economic recovery process and not be a drag on it.
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