Health of Indian Economy – A Perspective

~Anindya Sengupta

The Economic Survey, 2021 was tabled in the parliament today. The Ministry of Statistics and Programme Implementation also released the advanced estimates for Financial year 2020-21 earlier this month.

One of the major highlights of both the reports is that the GDP growth rate for FY-2020-21 is pegged at -7.7% as against 4.2% in the last financial year.

Source: Ministry of Statistics and Programme Implementation , Government of India

The Economic survey further projected the growth for next financial year i.e. FY 2021-22 to be at 11.0%. It needs to be noted that this is a year on year growth. So after a fall of -7.7%, the GDP is projected to grow at 11.0%. Hence as compared to the GDP of 2019-20, the GDP of FY 2021-22 is projected to grow by 2.4%. So effectively in two years Indian economy will have grown by only 2.4% as per the projections of Economic survey.

Source: Economic Survey, 2021 and Author’s calculations

A lot has been discussed and debated on the impact of COVID induced lockdown on the Indian Economy. IPD attempts to quantify the projected impact based on the advanced estimates and the economic survey projections

Data Source: MOSPI, Government of India, Economic Survey, Author’s Calculations

In 2019-20, the GDP stood at 14565951( Rs, Crores). The growth rate in that financial year was 4.2% which was the lowest in the last 5 years. In FY 2020-21 GDP as per Advanced Estimates is going to be 13439662( RS, Crores) which is a 7.7% drop compared to last FY. Now as we all know the primary reason for this drop is the COVID induced lockdown.

So what would have happened if the impact of COVID was not there. If we assume the Indian Economy continued to grow at 4.2% ( growth rate of FY, 2019-20) then the GDP in 2020-21 would have been 13% more than what it is now.

One can infer that the impact of COVID is gone only when the loss in GDP due to COVID is fully negated. Let us see based on the projections of economic survey, 2021, whether the impact of COVID gets negated completely in the next Financial year ( FY 2021-22). If we continue to assume that the Indian economy continued to grow at 4.2% ( growth rate of FY, 2019-20) in a non COVID scenario then also the GDP in 2021-22 would have been 6% more than what has been projected by the economic survey. Thus the impact of COVID continues to hamper the Indian Economy even in the next financial year.

Source: Ministry of Statistics and Programme Implementation, Government of India

As expected all components of GDP shows a significant decline in FY 2020-21 as compared to last Financial year. Investments show a negative growth second year in line and consumption also witnessed a significant negative growth. It needs to be pointed out here that consumption had shown a slowdown in growth even in last financial year. So a slow down in consumption growth means lack of demand and hence what we see is lack of investments leading to negative growth of investments.

Source: Ministry of Statistics and Programme Implementation, Government of India

In terms of sectoral growth it needs to be noted here that apart from agriculture and utility services sector, all other sector are estimated to witness a negative growth in FY 2020-21 as compared to FY 2019-20. The sharpest decline are in the Trade, Hotel, transport sectors, construction, manufacturing and mining sector.

So to conclude even with a projection of 11% growth in FY 2021-22, the Indian economy is going to see a effective growth of 2.4% in two years and the impact of COVID would lead the GDP to be less by 6% even after two years of the pandemic. It is to be seen what measures are taken in the budget to ensure that the impact of COVID is negated as fast as possible.

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