Economic growth for the pandemic year has been a bit more resilient than the general consensus, coming in at a decline of 7.3%, instead of a decline of 7.5%. That apart, there are no major surprises in the data. What it does reveal is the government doing a good job of supporting the economy in the first quarter of 2020-21, when the pandemic had hit India and the country had gone into lockdown, and then falling asleep on the job. Government final consumption expenditure, which had been an average of 10.75% of GDP over the previous four quarters, rose to a commendable, pandemic-appropriate 17.7% of GDP in Q1 of the last fiscal.
And then fell to an average of 11.2% of GDP for the remaining quarters. If the government had kept up the momentum of provision of welfare benefits, per-capita final consumption expenditure would not have fallen by 7% in nominal terms and 10.1% in real terms.
This has a bearing on what the government should do now. As industry and economists have been asking for greater stimulus, the finance minister has responded, waiting for budget outlays to kick in before talking about a fresh stimulus. The question is, why have budget outlays not started kicking in two months into a financial year of acute economic stress, after having presented the budget on February 1.
There is no reason to assume that the Indian economy is not capable of bouncing back, provided the pandemic is controlled and the economy opened up to normal activity. That the last fiscal ended with a current account deficit, albeit a small one, is a testament to the economy’s ability to absorb investment in excess of domestic savings.
Sound macroeconomic management, combined with budget and expenditure management that releases funds into the economy when it needs those funds, can bring life back to the economy. Construction is raring to, registering a growth of 14.5% in Q4, while declining 8% for the year as a whole. Construction has strong forward and backward linkages, and can boost growth, provided it gets fuel, as funding and enabling policy.
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India Ratings said the impact of the second wave will not be as disruptive as the first one, despite the daily caseload touching three times of the first wave’s peak, as lockdowns are set to be localized ones.