The Editorial Analysis: Road to Recovery_00.1
UPSC Exam   »   GDP Growth Rate India Grew by 20% in First Quarter   »   The Editorial Analysis: Road to Recovery

The Editorial Analysis: Road to Recovery

 

Road to Recovery: Relevance

  • GS 3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

 

Road to Recovery: Context

  • National Statistical Office has recently released the GDP and GVA estimates that has affirmed that the economy is now on the path to recovery after last fiscal’s record contraction.

 

The Editorial Analysis: Road to Recovery_50.1

 

Road to Recovery: Key points

GDP

  • Second quarter GDP expanded 8.4%, rebounding from the last year’s 7.4% contraction.
  • This rebound in economy is both due to base effect and the actual growth in the GVA as the growth is even more than the second quarter of the pre-pandemic 2019-20 fiscal year.

 

GVA

  • Gross Value Added also underscore the improvement, as the July-September 2021 GVA figure registered a 0.5% expansion from the July-September period of 2019.
    • GVA captures the extent of activity across the eight major formal sectors of the real economy.
  • Five of the eight sectors posted growth not just from the year-earlier quarter but also surpassed the pre-COVID-19 performance.
  • Manufacturing, which has the second-largest share of GVA, appears to have regained traction as it showed 9% expansion from the pre-pandemic second quarter of fiscal 2020.
  • The key employment-providing services categories, including construction are yet to fully recover from the pandemic’s devastating impact.
  • Moreover, as the potential impact of the Omicron variant is not known, the outlook here may stay hazy for now.

 

The Editorial Analysis: Road to Recovery_60.1

 

Road to Recovery: Issues

  • Private final consumption expenditure is not showing promising results.
    • Private final consumption measures spending on everything from essentials to luxury goods and the entire gamut of services by all consumers.
    • It has the largest share of GDP at 55%.
  • Reduced consumer spending: The uncertainty induced by the pandemic, coupled with reduced or lost incomes, continues to depress demand and is reflected in consumer spending still remaining 3.5% less than the pre-COVID level.
  • Government consumption spending: Since the Union Government is taking fiscal consolidation measures, it is spending less on consumption. The expenditure on consumption is even less than the pre-COVID levels.
  • Manufacturing PMI data by IHS Markit has revealed that rising input costs could force manufacturers to raise prices that will further increase the inflation.

 

Road to Recovery: Way forward

  • Policy makers need to increase the demand-supportive measures including increasing government spending to ensure that the recovery sustains and gains traction.

 

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