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Q1 GDP figures are depressing but not surprising

opinionQ1 GDP figures are depressing but not surprising

The problem is the government’s statist attitude and its reluctance to decontrol the economy at the pace that is required.

The growth data released by the Ministry of Statistics and Programme Implementation (MoSPI) showed that gross domestic product (GDP) grew by 20.1% and gross value added (GVA) by 18.8% in the first quarter of the current fiscal. Technically the GDP growth was highest ever, but in reality, it shows very weak recovery, if it can be called one.

GVA is GDP plus subsidies and minus taxes.

“GDP at Constant (2011-12) Prices in Q1 of 2021-22 is estimated at Rs 32.38 lakh crore, as against Rs 26.95 lakh crore in Q1 of 2020-21, showing a growth of 20.1% as compared to a contraction of 24.4% in Q1 2020-21,” said a MoSPI statement. This means that the first quarter GDP of this fiscal declined by 9.2% against Q1 GDP of 2019-20, which was in the pre-Covid period.

GVA in the first quarter this year, at Rs 3,047,516 crore, too registered about 8% dip vis-à-vis Q1 2019-20.

The disaggregated figures show the sectors of concern. Only two, “Agriculture, Forestry & Fishing” and “Electricity, Gas, Water Supply & Other Utility Services”, registered growth more in the first quarter than in Q1 2019-20. In the former, it went up from Rs 449,390 crore in Q1 2019-20 to Rs 465,280 crore in Q1 2020-21 to Rs 486,292 crore this quarter. In the latter, the corresponding figures are Rs 567,516 crore, Rs 363,448 crore, and Rs 543,821 crore.

For manufacturing, the corresponding numbers are Rs 567,516 crore, Rs 363,448 crore, and Rs 543,821 crore.

Recovery is weakest in “Trade, Hotels, Transport, Communication & Services related to Broadcasting”—decreasing form Rs 664,311 in Q1 2019-20 to Rs 345,099 crore in Q 2020-21, and the rising to Rs 463,525 crore in the first quarter this fiscal.

The MoSPI statement explained the first quarter numbers: “With a view to contain the second wave of the Covid-19 pandemic, localized and calibrated lockdowns were imposed during the first quarter of 2021-22. Restrictions were imposed on the economic activities not deemed essential, as also on the movement of people. The lockdown instructions in various states were duly considered by the National Statistical Office. The impact on economic activities and the data collection mechanisms owing to Covid-19 pandemic has an effect on the quarterly GDP estimates also. The impact of these measures on overall economic activity are (sic) embedded in source data.”

While localized and calibrated lockdowns did contribute to the depressingly weak recovery in the first quarter, these cannot be held solely responsible for the unimpressive Q1 numbers. At the heart of the problem lie the government’s statist attitude and its reluctance to decontrol the economy at the pace that is required.

Price control is one of the most emblematic features of statism. The government persists with it. So, it constituted the National Anti-Profiteering Authority (NAA) in 2017 to ensure that the reduction in rate of the Central goods and services tax was passed on the consumer—an unnecessary exercise in the first place, because prices should be determined by the market, not some set of bureaucrats.

It was supposed to have temporary, two-year term. But then, as Milton Friedman said, nothing is so permanent as a temporary government programme. The NAA got another extension, of two years, in June 2019.

Even two years later, the NAA was alive and kicking—that is, kicking wealth creators. “The National Anti-profiteering Authority (NAA) has instructed the top brass of the Goods and Services Tax (GST) administration to ensure that producers and suppliers of medical devices and drugs lower prices of Covid-related supplies to pass on the benefit of recent tax rate cuts to consumers,” said a news report on 24 June.

The farm sector, employing about half the workforce, remains heavily controlled. The three laws that the government enacted last year could have brought a sea change in agriculture, but the gauche manner in which they were introduced and cleared in Parliament has enraged many farm and Opposition leaders. It seems unlikely that they would bear fruit in the foreseeable future.

There is much talk about privatization—now called “asset monetization” in the false hope that this would reduce resistance to it—but little action. The Niti Aayog has been preparing lists of the public sector undertakings that would be privatized for years. A few days ago, its Chief Executive Officer Amitabh Kant claimed that a number of assets identified under the Rs 6-lakh crore National Monetization Pipeline are in advanced stages of approval or bidding. We’ll believe that when we see that.

Meanwhile, the ministers holding important portfolios indulge in loose talk. Worse, they often use the phraseology of socialists.

Against this backdrop, the first quarter GDP figures may appear depressing but not surprising.

Ravi Shanker Kapoor is a freelance journalist.

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