Green shoots of economic recovery welcome

The third quarter of the current financial has seen the country emerge from the Covid-induced recession, howsoever slightly and haltingly. The GDP growth of 0.4%, announced by the National Statistical Office (NSO), is a good green shoot, and it marks a year-on-year rise at constant prices. There is also an estimate of a marginal contraction in the fourth quarter. Gross Value Added (GVA) expanded by 1% in the third quarter against a decline of 22.4% and 7.3% in the first and second quarters, respectively. Real Gross Capital Formation (RGCF) saw high growth during the quarter. It is expected to grow by 2.5% in the January-March quarter. It is also expected that the economy may return to the pre-pandemic levels of growth in the second half of the next financial year.

Recovery was aided by the continuing growth of the agricultural sector, which expanded by 3.9%. It has the possibility of registering a 3% growth for the whole year. Industry has improved, with the manufacturing and construction sectors growing by 1.6% and 6.2%, respectively. Though private consumption and household spending declined in spite of the boost given by festival spending, there was a moderate expansion in investment. Much of the investment was on account of government spending, however, and private investment is still low. Financial services have seen good growth, but areas like trade, transportation, hotels and communication have continued their poor run. Segments that are labour and contact intensive have also not seen any significant positive movement. This may be the result of the loss of jobs and income, which are far from their previous levels, and the curbs on activities enforced by the Covid-19 protocol.

While the signs of revival are encouraging, they cannot be taken as indications of a sustained turnaround. In the case of industry, the growth was mainly contributed by the bigger firms. The small and medium sectors are still struggling. The NSO figures reflect the performance of the formal sector and it does not give the full picture of the economy. The informal sector has not picked up and there are no figures to show their performance. Governments at the Centre and in the states may not be in a position to do much more to push growth through public spending. Revenue from disinvestment may be available to the Centre only after months. The Reserve Bank of India (RBI) has done most of what it can through policy and actions. Most importantly, the spurt in Covid-19 cases in some parts of the country poses a threat to economic activities. Vaccination for the general population has only just started and will take time to make a difference.