May 31, 2023

The Economy Is Tottering

By Linus Garg
First publised on 2020-06-01 13:28:27

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Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.

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The GDP figures for the fourth quarter of the current financial year released by the NSO paint a grim picture. Keeping in line with the situation on the ground, the revised data of the first three quarters of this financial year shows that the economic slowdown, even before the coronavirus crisis, was more pronounced than was previously estimated. When the data for the first three quarters was released at the designated time in 2019 and early 2020, it was not in tune with the situation on the ground. Most sectors of the economy were suffering from a lack of demand and inventory was piling up. Even the revised data for those quarters released now do not show the correct picture. Hence, the economy had slowed down considerably even before the coronavirus crisis hit it.

The data released now cannot also be relied upon in full because the timeline for submitting financial returns has been extended due to the pandemic. Hence, the current data has been released with limited inputs and is subject to downward revision once the full set of inputs is available. Yet, the data clearly shows that the economy is heading downhill at a rapid speed. The eight core industries contracted by 38 percent. Private consumption slumped to just 2.7 percent from 6.6 percent in the Oct-Dec quarter. Imports (leaving out oil and gold) went down by 52 percent while exports declined by 60 percent. Credit off-take is not happening as both businesses and individuals are wary of borrowing in these difficult times.

Growth in gross value added was just 3 percent but if agriculture, public administration and defence are left out, the rest of the economy provided just a depressing 1 percent growth to the GVA. Manufacturing has now contracted for three straight quarters, and the pace of contraction has become deeper in each successive quarter. Similarly, the construction sector has contracted for two straight quarters. Trade, hotels and communication, finance, real estate and professional services have all slowed down considerably. The power sector has shown some improvement (it contracted by 22.8 percent in April when the country was under full lockdown but improved to a contraction of 14.9 percent when restrictions were eased in May). But only the full data of the April-June quarter will show the true impact of the lockdown. It is now clear that the full years' data for the financial year 2019-20 will show considerably lower growth that was previously expected. It remains to be seen whether the economic package pushes up demand and revives the economy.