Indian economy: much-vaunted GDP in free fall

Dr Santosh Kumar Mohapatra *

India lags behind many countries in the world in many international indicators, although its rulers claim to be a superpower. It is known as a consumer rather than a producer country. Many multinational companies come to India because labor is cheap and taxes are low and the rules can be easily overturned to increase their profits. The only area where India had supremacy was GDP growth.

India was considered one of the fastest growing economies in the world or a high growth country, although many economists doubt the methodology for calculating GDP. India’s GDP has never been inclusive, equitable and not reflected in terms of a tax increase. But the pandemic has also devastated its much-vaunted growth.

The second wave of the virus hit the consumer demand normalization process again, dampened pent-up demand and spooked the economy longer than expected. India experienced negative growth of -7.3% and a record contraction is larger than other countries like America (-4.7%), Japan (-6.6%), Russia (-3.1%), Brazil (-4.1%) 0, South Africa (-7%), Pakistan which only experienced growth of -0.5%.

India’s contraction is much higher than the 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 greater than around 145 countries. What our government needs to consider is that while India has negative growth, China has positive growth of 3.2%, Bangladesh 2.4%, and the BRICS countries 0.3%.

Further in 2019, as India saw 4% GDP growth, China saw 6% growth, the BRICS (4.9%). In the past, India had experienced a contraction of -1.2% (1957-58), -3.66% (1965-66), -0.32% (1972-73) and -5.2% (1979-80), but never seen such a contraction in the past. Now, due to the second wave of the pandemic, the World Bank, IMF, RBI and other rating agencies have lowered their growth forecasts for 2021-2022.

The World Bank has cut its GDP growth forecast for 2021-2022 for the Indian economy to 8.3% from an estimated 10.1% in April, saying the economic recovery is hampered by the devastating second wave of infections in India. coronavirus. The RBI also cut its growth forecast for the current fiscal year by one percentage point, from 10.5% to 9.5%. Even 9.5%. the growth may seem impressive, but it is happening on a very low basis compared to last year. Even if that growth rate is achieved, total GDP in this 2021-22 fiscal year will still be lower than the GDP of two years ago before the pandemic hit us.

Swiss brokerage firm UBS Securities India pointed out that lockdowns imposed by states in April and May to contain and quell the second wave of the deadly COVID-19 pandemic likely led the economy to contract 12% over the course of for the June quarter against 23.9%. contraction in the same quarter in 2020. The bitter fact is that GDP at constant prices and annual income per capita have fallen since 2018-19. The GDP at constant prices in 2018-19 was Rs 1,4003,316 crore. It is estimated to drop to Rs 13,408,862 crore in 2020-21. The annual per capita income is expected to drop from Rs 105,525 to Rs 99,694 over the same period. It was Rs 88,616 in 2015-16.

In addition, four indicators were worse than two years ago: private consumption, gross fixed capital formation, exports and imports. What is disconcerting is that looking at the composition of the expenditure side of GDP, we see that private consumption expenditure has declined. GDP includes private consumption, public consumption, investment demand and net trade. Unfortunately, private consumption spending which constitutes the bulk of India’s GDP has not increased significantly.

It rose 2.7% in January-March 2021, only relatively better than the contractions seen in the first three quarters of the year. The share of private consumption expenditure at current prices in January-March 2021 was 59.2%, lower than 60.4% in January-March 2020. It was a known fact that consumer demand was weak even before that COVID-19 doesn’t hit us.

The Indian government attributes the GDP crash to the consequences of the pandemic. While Finance Minister Nirmala Sitharaman spoke of an act of God, Prime Minister Narendra Modi blamed the invisible enemy. In fact, India’s 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 which was already grappling with massive bad debts in the banking system. The GDP growth rate went 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 massively by 7.3% in 2020-21.

The mismanagement and bad governance of the Indian economy is reflected, corroborated by certain facts and indicators. Consumer spending in India fell for the first time in more than four decades in 2017-18. The last time it had declined in 1972-73. An academic article – written by Santosh Mehrotra and Jajati K Parida and published by the Center for Sustainable Employment of Azim Premji University found that “total employment in 2011-12 and 2017-18 decreased by 9 million” . In addition, nearly 2.6 million jobs were lost each year between 2011-2012 and 2017-2018. The unemployment rate hit a 45-year high of 6.1% in 2017-18. The rate was highest after 1972-73.

In order to assess India’s progress in GDP, it is necessary to compare with neighboring countries like China, Bangladesh. In the latest IMF Economic Outlook (April 2021), Bangladesh overtook India in terms of GDP per capita. Bangladesh’s GDP per capita was only half that of India in 2007, just before the global financial crisis. It was around 70% of India’s in 2014 and this gap has been closing rapidly in recent years. India’s (nominal) GDP per capita in 2021 is projected at $ 2,191 at current prices. India ranks 144th out of 194 economies in terms of (nominal) GDP per capita. This means that India is behind 143 countries in terms of (nominal) GDP per capita.

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

China and India are the two emerging economies in the world. In 2021, China and India are respectively the 2nd and 6th largest economies in the world. India again became the world’s sixth-largest economy in 2020, behind the United Kingdom. In terms of purchasing power parity (PPP), China is in 1st place and India in 3rd place. The two countries share 21% and 26% of total world 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 (nominal) GDP of the two countries was almost equal; even in PPP terms, China was slightly ahead of India in 1990. Today, in 2021, China’s GDP is 5.46 times that of India. On a PPP basis, China’s GDP is 2.61 times that of India. China crossed the $ 1 trillion mark in 1998, while India crossed nine years later in 2007 based on the exchange rate.

The two countries were neck and neck in terms of GDP per capita until 1990. By both methods, India was richer than China in 1990. In 2021, China is nearly 5.4 times wealthier. rich than India in nominal terms and 2.58 times richer in PPP terms. The per capita rankings of China and India are respectively 56th and 144th. China reached a peak GDP growth rate of 19.30% in 1970 and a low of -27.27% in 1961. India hit an all-time high of 9.63% in 1988 and a record low of – 7.3% in 2020. Therefore, it is high time that the Indian government should do some soul-searching because its much-vaunted GDP growth is collapsing.

The author is a prominent Odisha-based columnist / economist and social thinker. He can be contacted by e-mail at [email protected]

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

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