Indian economy: Much-vaunted GDP dashed

Dr. Santosh Kumar Mohapatra*

India is behind many countries in the world in many international indicators, though its rulers claim to be a superpower. It is known as a consuming country rather than producing one. Many multinational companies come to India as labour is cheap and tax is low and rules can be easily subverted to enhance their profit. The only area where India had supremacy was in GDP growth.

India was considered one of the world’s fastest-growing economies or country with high growth, though many economists doubt the methodology of GDP calculation. India’s GDP was never inclusive, equitable, and not reflected in terms of rise in a tax. But the pandemic has devastated its much-vaunted growth too.

The second wave of the virus has squarely hit the process of normalization of consumption demand again, dampened pent-up demand, and scared the economy for a longer period than is being expected. India witnessed negative growth of – 7.3 % and record contraction is more compared to other countries like America (-4.7%), Japan ( -6.6%), Russia (-3.1%), Brazil (-4.1%)0, South Africa (-7%), Pakistan which witnessed only-0.5 % growth.

India’s contraction is much higher as compared to world average of (-3.5%), advanced countries (3.5%), Euro area (-3.5%), low-income countries ( -3.3%). Some have reported that India’s GDP contraction is more than around 145 countries. What our government must introspect is that while India has negative growth, China has positive growth of 3.2%, Bangladesh 2.4%, and BRICS nations 0.3%.

Further in 2019, while India has seen GDP growth of 4%, China had seen 6%, BRICS (4.9%). In past, India had seen a contraction of -1.2% (1957-58), -3.66% (1965-66), -0.32% (1972-73) and -5.2% (1979-80), but never seen such gigantic contraction in past. Now due to the second wave of the pandemic, the World Bank, IMF, RBI, and other rating agencies have trimmed their growth forecast for 2021-22.

The World Bank slashed its 2021-22 GDP growth forecast for the Indian economy to 8.3% from 10.1% estimated in April, saying economic recovery is being hindered by the devastating second wave of coronavirus infections. The RBI too reduced its growth forecast for the current fiscal by one percentage point, from 10.5% to 9.5%. Even 9.5%. growth might seem impressive but this is coming on a very low base of last year. Even if this growth rate is achieved, the total GDP during this fiscal 2021-22 will still be less than the GDP two years ago before the pandemic struck us.

The Swiss brokerage UBS Securities India has pointed out that lockdowns imposed by the states in April and May to contain and quell the second wave of the deadly COVID-19 pandemic has likely led to the economy contracting 12% in the June quarter as against 23.9% contraction in the same quarter in 2020. The bitter facts are that the GDP at constant prices and the per capita annual income have tumbled since 2018-19. The GDP at constant prices in 2018-19 was Rs 14003316 crore. It is estimated to decline to Rs 13408862 crore in 2020-21. The per capita annual income is estimated to decline from Rs 105525 to Rs 99694 in the same period. It was Rs 88616 in 2015-16.

Further, four indicators were worse than what they were two years ago: private consumption, gross fixed capital formation, exports, and imports. What is disconcerting is that looking at the expenditure side composition of the GDP, it is found that private consumption expenditure has declined. The GDP comprises private consumption, government consumption, investment demand, and net trade. Unfortunately, the private consumption expenditure that comprises the bulk of Indian GDP failed to grow by any significant extent.

It grew by 2.7% in January-March 2021, only relatively better than the contractions witnessed in the first three quarters of the year. The share of private consumption expenditure in current prices in January-March 2021 was at 59.2 %, weaker than 60.4% January-March 2020. It was a known fact that the consumption demand was weak even before COVID-19 hit us.

The Indian government is ascribing the GDP crash to the aftermath of the pandemic. While Finance Minister Nirmala Sitharaman has talked of the act of God, Prime Minister Narendra Modi has shifted blame to the invisible enemy. Actually, the Indian economy was already slowing down before the pandemic decimated it. As the ripples of draconian demonetization and a poorly planned and hastily implemented Goods and Services Tax (GST) crippled the Indian economy that was already struggling with massive bad loans in the banking system. The GDP growth rate steadily fell from over 8.3% in 2016-17 to 6.8% in 2017-18, 6.5% in 2018-19 to 4% in 2019-20 before contracting by massive 7.3% in 2020-21.

The mismanagement and poor governance of the Indian economy are reflected, corroborated by certain facts and indicators. Consumer spending in India declined for the first time in more than four decades in 2017-18. The last time it had declined in 1972-73. An academic paper — written by Santosh Mehrotra and Jajati K Parida and published by the Centre of Sustainable Employment at the Azim Premji University revealed that the “total employment during 2011-12 and 2017-18 declined by 9 million”. Also, close to 2.6 million jobs were lost every year between 2011-12 and 2017-18. The unemployment rate had touched 45 years high of 6.1% in 2017-18. The rate was highest after 1972-73.

In order to evaluate India’s progress in GDP, there is a need for comparison with neighboring countries like China, Bangladesh. In IMF’s latest Economic Outlook (April – 2021), Bangladesh has overtaken India in GDP per capita. Bangladesh’s per capita GDP was merely half of India’s in 2007, just before the global financial crisis. It was roughly 70% of India’s in 2014 and this gap closed rapidly in the last few years. The GDP (nominal) per capita of India in 2021 is projected at $2,191 at current prices. India is in the 144th position out of 194 economies in terms of GDP (nominal) per capita. It means India is behind 143 countries in terms of GDP (nominal) per capita.

In 1993, India’s GDP per capita was 6.45 % of the global GDP per capita; it improved to 18.4% in 2019. India’s nominal per capita is over 60 times lower than the richest country and approximately eight times greater than the world’s poorest country. India is at 33rd position in the list of Asian countries.

China and India are the two emerging economies in the world. As of 2021, China and India are the 2nd and 6th largest economies in the world, respectively. India has been pushed back to being the world’s sixth-biggest economy in 2020, behind the UK. In terms of purchasing power parity (PPP) basis, China is at 1st, and India is at 3rd place. Both countries share 21% and 26% of the total global wealth in nominal and PPP terms, respectively. Among Asian countries, China and India together contribute more than half of Asia’s GDP.

In 1987, the GDP (Nominal) of both countries was almost equal; even in PPP terms, China was slightly ahead of India in 1990. Now in 2021, China’s GDP is 5.46 times higher than India’s. On a PPP basis, the GDP of China is 2.61 times of India. China crossed the $1 trillion mark in 1998, while India crossed nine years later in 2007 on an exchange rate basis.

Both countries have been neck-and-neck in GDP per capita terms till 1990. As per both methods, India was richer than China in 1990. In 2021, China is almost 5.4 times richer than India on the nominal and 2.58 times richer in the PPP method. The per capita rank of China and India is 56th and 144th, respectively. China attains a maximum GDP growth rate of 19.30% in 1970 and a minimum of -27.27% in 1961. India reached an all-time high of 9.63% in 1988 and a record low of -7.3% in 2020. Hence, it is high time the Indian government should introspect because its much-vaunted GDP growth is crashing.

 

The author is an Odisha-based eminent columnist/economist and social thinker. He can be reached through e-mail at [email protected]

DISCLAIMER: The views expressed in the article are solely those of the author and do not in any way represent the views of Sambad English.