By Satish Singh
The latest figures of Gross Domestic Product (GDP) are a relief for the economy battling the Corona pandemic. GDP grew by 20.1 percent in the first quarter of FY 2021-22, the highest ever growth in any quarter, as against a negative 24.4 percent growth in the June quarter last year. Although the base effect is the reason for the sharp increase in GDP, but on a quarterly basis also, the steady growth in GDP since the December quarter of last year indicates a pick-up in growth. In addition, 8 core sectors, including cement and coal, grew by 9.4 per cent in July 2021 on a year-on-year basis, indicating that economic activity would be normal till the last quarter of the current financial year if the third wave, doesn’t come in incoming months.
At present, the base year of GDP is 2011-12. Basis of base year effect on GDP refers to the effect that results from comparisons between data points. Using a different reference or basis for comparison increases the difference between the data points. GDP is the total cost of all goods and services produced in a country in a given year. It is the biggest measure of economic development of the country. Growth in GDP means that the country is developing. It also shows which area is growing and which area is not.
The Gross Value Added (GVA) during the first quarter of the current financial year stood at Rs 30.1 lakh crore, an increase of 18.8 per cent over the previous year. GVA shows the total output and income of the economy. It tells how many rupees of goods and services were produced in a given period after separating the cost of a commodity and the price of raw materials. It also shows how much production has taken place in which sector.
During April and July 2021, the fiscal deficit stood at 21.3 percent of the budget estimate, the lowest in the last nine years, while in the amount it was at Rs.3.21 lakh crore. The budget estimate of fiscal deficit for the financial year 2021-22 was Rs.15.06 lakh crore. During this period, the government recovered Rs.5.30 lakh crore as net tax, while Rs.10.04 lakh crore was spent on various heads. The increase in government expenditure is an indication that the government is making continuous efforts to accelerate economic activities.
According to Shri Krishnamurthy Subrahmanyam, Chief Economic Adviser to the Government of India, Google Mobility Indicator indicates that the activities of groceries have reached the level before the corona pandemic. Supermarkets, grain godowns, grain markets, medicine stores, etc. are witnessing an increase in crowds for purchase of diverse products.
Corona pandemic alone cannot be considered as a factor for the current economic plight. The economy had started showing slowdown even before the pandemic. GDP growth reached 8.9 percent in the March quarter of 2018, but since then the GDP growth rate has declined. Due to lockdown, GDP registered negative growth in June quarter of last financial year. Even in September quarter, it was in negative zone, but it turned positive in the December quarter and since then there has been a steady growth in GDP.
Low spending, slow pace of business, reduction in government spending, etc. are responsible for the fall in GDP. The private sector expenditures contribute 32 percent to GDP, while government expenditures contribute 11 percent. Net demand is also a major contributor to the growth of GDP, but in India it is always negative. Net demand comes after subtracting exports from imports. Since, imports are always more than exports in India, therefore, it always has a negative impact on GDP growth. Therefore, the common man, businessmen and the government should work together to accelerate the growth in GDP. If expenditure increases, GDP will also increase.
Despite the Corona pandemic, the buying and selling of houses across the country has not stopped. Its market has seen a growth of almost one third in the last 5 years and two and a half times last year. The manufacturing PMI figures have also been satisfactory and the growth rate in industrial production is also positive.
Although many sectors have been adversely affected by the Corona pandemic, but Micro, Small and Medium Enterprises (MSMEs) have been affected the most. This sector contributes 30 percent to the country’s Gross Domestic Product (GDP) and is one of the largest employments generating sectors. According to the Reserve Bank of India data, there was a decline of 0.3 percent in bank credit to MSMEs in June 2021, while the credit to micro and small enterprises increased by 6.4 percent during this period, as compared to last year. There was a decline of 2.9 percent in credit being given to the sector. However, loans disbursed to medium enterprises increased by 54.6 percent in the month of June.
The Government’s Emergency Credit Line Guarantee Scheme (ECLGS) has brought a lot of relief to the MSME sector, but there is still a need to provide relief to the sector. There is also a need to provide help to big industries and other sectors. Therefore, the work of restructuring the stressed MSMEs and large loan accounts is being done by the banks. Finance Minister Smt. Nirmala Sitharaman has recently asked the heads of public sector banks to expedite loan disbursement in the coming festive months. State Bank of India has disbursed a loan of Rs 27000 crore to provide relief to MSMEs affected by the Corona pandemic, but the credit offtake is still very less in other sectors including MSMEs. Not only this, but the sanctioned loan limit is also not being utilized by the borrowers.
In the current economic scenario, economic activities will pick up only when MSMEs, large industries and other enterprises start functioning smoothly. For the time being, there is a possibility of the arrival of the third wave of corona pandemic and the need to provide relief to the industries. The distressed industries and businessmen will get relief only when the government, banks and other stakeholders provide other reliefs, cut the loan interest rates, or at least keep it unchanged.
In the June quarter of 2021, GDP grew at the rate of 20.1 percent, due to the base effect. Nevertheless, GDP growth is being recorded on a quarterly basis, which is an indication that the economy is getting back on track, but to maintain this growth rate, the central bank will have to refrain from increase the policy rates in the upcoming monetary reviews.
(Author is Chief Manager at State Bank of India, Mumbai. The views expressed are personal opinion of the author. He can be reached at [email protected] and [email protected].)