Investment up, consumption lags, job growth tepid

The GDP estimates released by the National Statistical Office (NSO) for the second quarter of the 2021-22 fiscal (July-September) have seen a growth of 8.4% over the corresponding period last year. It is higher than the estimates made by the RBI and other agencies. But a comparison with the same period last year may be misleading because the economy then was down in the dumps, opening up slowly after the national lockdown. In absolute terms, the output at Rs 35.73 lakh crore is slightly higher than the Rs 35.62 lakh crore reported in the second quarter of 2019-20. So, the best that can be said is that the GDP is at pre-pandemic levels for the quarter, but its direction is still not very clear. There are some good signals. After a long time, the economy has seen good growth in investments. It is the best in many quarters and that may be a sign of optimism about future growth.

But there are areas of concern. Private consumption expenditure is still 3.5% lower than in the equivalent quarter of 2019-20. Private consumption accounts for 54.5% of the GDP and its sluggishness shows that the growth impulses are still weak. Investment growth cannot sustain without growth in private consumption. It is unlikely that government expenditure will aid growth substantially. The government has not shown much inclination for this. While tax revenues have improved, the expected income from disinvestment has not happened. Government investment in the second quarter rose only by over 8% and in absolute terms, it was the lowest in the past five years. The government needs to increase public expenditure to aid the nascent recovery. Growth in some sectors like agriculture, manufacturing and power was fairly good during the quarter. Growth in five out of eight sectors has improved, and some of them have touched their pre-pandemic levels. Construction, hospitality and trade are struggling. In fact, most of the contact-intensive and informal sectors are still suffering from the impact of the pandemic, and they account for a large part of the economy.

The growth numbers for the current quarter, when they are available, will give an indication of the trend in the economy. There are some key factors that need to be watched. Employment has not picked up well and wage growth is low. If inflation gains ground, that will make it difficult to encourage growth through monetary policies. The international environment is not very benign, with most countries facing growth problems. Commodity prices have been rising and trade has failed to regain momentum. Most importantly, the pandemic has not yet gone away and the impact of the new variant Omicron on society and the economy is not yet known.