May 31, 2023

The Economy: Out Of Technical Recession

By Ashwini Agarwal
First publised on 2021-02-27 02:34:56

About the Author

View all posts by this Author

The Indian economy is out of technical recession. It has posted a small growth of 0.4% (3.3% last year in the same period) in the December quarter as per the data released by the NSO. The government says that this small growth shows the strengthening of the V-shaped recovery. Yet, the finance ministry has revised its estimates for the full year. The economy is now likely to contract by 8 percent in FY2020-21 against the earlier estimate of 7.7%.

In the December quarter, the farm sector grew by 3.9 percent; manufacturing by 1.6 percent; construction by 6.2 percent and electricity, gas, water and other utility services grew by 7.3 percent. Trade and hotel services went down by 7.7 percent.

The per capita income in real terms at 2011-12 prices was Rs 85929 (Rs 94566 last year) and was down by 9.1 percent. At current prices, it stood at Rs 127768 (Rs 134186 last year) and this was down by 4.8 percent.

These figures show that although the economy is recovering, the pace is slow and it will take time to return to pre-pandemic levels. The opening of many sectors has worked in the favour of the economy but the looming danger of a resurge in infections, despite vaccination, might play spoilsport. Restrictions are already being imposed in hotspots, especially in Maharashtra, and if the spread is not contained, limited lockdowns can make a comeback. Further, if fuel prices are not contained (with no likelihood of world crude prices easing in the near term), there will be an uptick in inflation and that is likely to suppress demand further.

The government needs to support the economy by making quick and heavy investments in infrastructure. Although the Budget had laid out a roadmap, if sell-off of PSUs and banks do not happen fast and if GST collections do not maintain the recent good showing, the government will be strapped for funds. The virus has also got to be contained and this time, closing down industry or business establishments should be the last option. We need to vaccinate a critical mass at the earliest and the decision to involve the private sector from March 1 and make the vaccination drive a walk-in affair for certain age groups is welcome. If the virus doesn’t change the equation and if the government finds the money to invest, one feels that the economy will rebound strongly from the first quarter of FY 2021-22.