Be aware what the '15% growth' means

While the economic situation is better than it was when the Covid pandemic hit, the economy has barely grown in the last three years

At 5.30 pm on August 31, the Ministry of Statistics and Programme Implementation will publish the GDP figures for the period April to June 2022. Economists expect the GDP growth in the period to be in double digits. The news agency Reuters polled 51 economists and the median of expectations was 15.2 per cent over the same period in 2021.

As is the wont these days, within a couple of hours of this figure being published, social media, led by WhatsApp forwards, will be abuzz with how well the Indian economy is doing. It is important to understand here that the 15.2 per cent growth expected during April to June is primarily on account of the base effect.

The GDP from April to June 2021 was Rs 32.46 lakh crore. The second wave of the Covid pandemic was at its peak during this period and had a negative impact on economic activity, leading to a GDP figure that was lower than that during April to June 2019, before Covid broke out.

The GDP during April to June 2019 had stood at Rs 35.49 lakh crore. In fact, even the GDP during April to June 2018, which was Rs 33.82 lakh crore, was more than the GDP during April to June 2021.

Of course, the GDP during April to June 2021 was higher than the GDP during April to June 2020, given that through that period, India was under a total lockdown. This led to the economic activity collapsing and in the process the GDP during the period had stood at Rs 27.04 lakh crore.

So, what this means is that the GDP during April to June 2021 had stood at Rs 32.46 lakh crore and this was lower than the GDP during April to June 2019, when it had stood at Rs 35.49 lakh crore.

A 15.2 per cent GDP growth during April to June 2022 would mean we should get a GDP figure of Rs 37.4 lakh crore. This implies a GDP growth or economic growth of just 1.76 per cent per year over a three-year period from April to June 2019 to April to June 2022. This is the right way to look at the situation. The expected 15 per cent+ year-on-year growth that will be touted will be just the base effect at work, the low base of which may be attributed to the Covid wave last year.

In fact, large parts of the economy are still dealing with the negative economic effects of the Covid pandemic, and that can be seen in several other data points. Take the case of two-wheeler sales, which is one of the best indicators of the overall state of the economy, given that it shows the purchasing power of the population at large.

The domestic two-wheeler sales from April to July this year has stood at 5.03 million units. While the sales were more than the same period in 2021 and 2020, they were 23 per cent and 33 per cent lower than the sales in the same period in 2019 and 2018, respectively.

Or take the case of the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). The work demanded under the scheme by rural households from April to July this year has been lower than the work demanded during the same periods in the last two years, but it’s still around 19 per cent more than the work demanded during the same period in 2019, before Covid broke out.

Or take the case of mobile tele-density. In December 2019, before Covid broke out, it had stood at 87. This means that there were 87 mobile phone connections for every 100 individuals. By June 2022, the latest data available, this had fallen to 83.3.

Further, a report in The Indian Express points out that in 2021-22, over 23 million life insurance policies were surrendered by policyholders. This means that policyholders stopped paying premiums on 23 million policies. In 2020-21, that number had stood at a little less than 7 million.

To conclude, while the economic situation is better than it was when the Covid pandemic hit in 2020 and when it rapidly spread in 2021, the economy has barely grown in the last three years. As mentioned earlier, the economic growth from April to June 2019 to April to June 2022 is likely to be around 1.76 per cent per year, assuming the expected 15 per cent+ year-on-year growth comes to pass.

There are large sections of the economy that are still struggling, and it is important to understand this rather than get carried away by the gung-ho “15 per cent+ growth” forwards that are likely to hit our mobile phones this week.

(The author lives to read crime fiction, and unlike his honest ancestors, makes a living writing on economics)