By Prabhat Patnaik
The estimates of Gross Home Product for the April-June quarter launched by the federal government of India on August 31 paint a dismal image of the Indian economic system. Because the GDP in actual phrases (at 2011-12 costs) exhibits a rise of 13.5 per cent over the primary quarter GDP a yr in the past, and since 13.5 per cent seems a powerful determine, official spokespersons have been placing a cheerful gloss over it. However a more in-depth look reveals an economic system getting additional slowed down in a state of stagnation.
The economic system, it could be recalled, had contracted sharply in 2020-21 due to the pandemic and the related lockdown that was significantly draconian in India, and the restoration in 2021-22 had been incomplete from the trough reached a yr in the past. The 2022-23 first quarter figures due to this fact had assumed explicit significance as an index of the economic system’s underlying resilience, particularly because the impression of Covid-19, although not altogether absent, had lessened to such an extent that 2022-23 may very well be taken as a “regular” post-pandemic yr. And the comparability right here must be not with 2021-22 or 2020-21, each of which had been affected by the pandemic, however with 2019-20 which was the final “regular” pre-pandemic yr.
The primary quarter GDP in 2019-20was Rs 35.85 lakh crores, and the primary quarter GDP in 2022-23 has been estimated at Rs 36.85 crores, which is barely 2.8 per cent greater. The economic system briefly is stagnating even at a time when the pandemic has largely abated and may now not be held accountable for it. Some official economists have expressed satisfaction that at the very least the GDP determine has crossed what it was within the first quarter of 2019-20; however there was a niche of three years in-between, throughout which the inhabitants has elevated and the capital inventory has expanded. Merely crossing the GDP of three years in the past due to this fact isn’t any trigger for celebration; quite the opposite, it displays a scenario of disaster. Put otherwise, between the pre-pandemic “regular” and the post-pandemic “regular”, the per capita GDP has fallen, though the per capita capital inventory has expanded.
It should even be remembered that 2019-20 itself was not a fantastic yr for the Indian economic system. In reality the primary quarter GDP in 2019-20 had elevated by solely 5 per cent over the earlier yr’s first quarter, in comparison with 8 per cent within the comparable interval of the earlier yr, inflicting a lot disquiet amongst official economists. The stagnation that was setting in throughout 2019-20 has thus continued, and has even received intensified now.
The pandemic was an extraneous imposition upon this image of stagnation; it muddied the image and gave rise to the misunderstanding that every one the financial travails had been due to the pandemic, that there was nothing essentially mistaken with the underlying economic system. However as soon as this extraneous imposition is eliminated, we’re again with the underlying stagnation, belying all of the breezy official optimism. This stagnation is a matter of grave concern as a result of even when development brings distress to the working folks, because it did in India throughout the heyday of the neo-liberal interval, stagnation brings even larger distress.
The essential purpose for this stagnation is the stagnation or decline within the buying energy within the arms of the working folks that happens in a neoliberal economic system due to rising earnings inequality. On this particular occasion nonetheless the rise in non-public consumption expenditure between the primary quarters of 2019-20 and 2022-23has been greater than the expansion fee of the GDP. True, the consumption of the working folks has been languishing for need of ample buying energy, however the consumption of the wealthy and the well-to-do, which had received restricted perforce throughout the pandemic, has now elevated instantly; and this has pulled up the overall non-public consumption expenditure. The fast trigger for the stagnation in GDP due to this fact lies elsewhere: there are two further elements that forestall a better degree of mixture demand and therefore a better GDP. These are: a stagnation in authorities consumption expenditure, and a rise within the commerce deficit, i.e. within the extra of imports over exports.
Whereas non-public consumption expenditure in actual phrases (at 2011-12 costs) elevated between the primary quarter of 2019-20 and that of 2022-23 from Rs 19.74 lakh crores to Rs22.08 lakh crores, and whereas gross mounted capital formation elevated from Rs 11.66 lakh crores to Rs 12.78 lakh crores, authorities consumption expenditure declined marginally from Rs 4.21 lakh crores to Rs 4.14 lakh crores. On the similar time the surplus of imports over exports elevated from Rs1.62 lakh crores to Rs 2.98 lakh crores. The ratio of commerce deficit to GDP (that is calculated by taking each magnitudes at present costs) elevated from 4per cent within the first quarter of 2019-20 to five.3 per cent within the first quarter of 2022-23. If the identical ratio of commerce deficit to GDP had obtained within the first quarter of 2022-23 as in 2019-20, then the expansion fee in GDP between these two quarters would have been 4.1 % and never the two.8 per cent that has really occurred.
Thus the 2 fast further elements that labored to intensify the stagnation of the economic system, over and above the fundamental downside of rising earnings inequality, had been: first, fiscal conservatism that stored down authorities consumption (i.e., non-investment) expenditure; and second, the truth that a a lot bigger proportion of mixture expenditure “leaked out” overseas within the type of imports. And each fiscal conservatism and unrestricted openness to imports are options of a neo-liberal regime, as is the fundamental downside of rising earnings inequality. Neo-liberalism not solely underlies the long-term stagnation of the economic system, owing to the rising earnings inequality that’s an imminent tendency underneath it; but it surely additionally underlies the extra elements that intensify this stagnation. What’s extra, this stagnation will turn out to be worse within the days to return for at the very least two causes.
The primary has to do with the truth that funding is not going to be sustained at its current degree if GDP continues to stagnate. Since between 2019-20and 2022-23, there has hardly been any enhance in GDP, the manufacturing capability that existed in 2019-20 is kind of ample to supply what’s being at the moment produced. However in the meantime funding has continued to happen; and even when we pass over the funding which will have occurred for changing capability that’s being retired due to age, and likewise the funding that embodies new processes, a specific amount of funding will need to have occurred that has added to capability and that will now stay unutilised. In different phrases, the funding that has occurred throughout this era of GDP stagnation would have elevated the extent of unutilised capability within the economic system. Due to this development in unutilised capability, funding should decline within the days to return, contributing additional to a reducing of mixture demand and therefore of output.
The second purpose has to do with the rise that’s occurring within the commerce deficit, which can also be resulting in a widening of the present account deficit. In a scenario the place finance is flowing away from nations within the periphery to the metropolis, assembly an growing present account deficit turns into much more tough, giving rise to an additional depreciation of the rupee, which in flip raises the speed of inflation within the economic system. The standard response to an acceleration within the fee of inflation is to chop again on authorities expenditure and to lift the rate of interest, which is precisely what’s going to maintain occurring right here. These are essentially recessionary measures whose impact is to cut back the bargaining energy of the working folks, in order that the inflationary course of is resolved at their expense.
There’s a additional level right here. When the present account deficit widens, expectations construct up among the many financiers that the rupee will additional depreciate, which really results in an outflow of finance, in order that these expectations turn out to be self-fulfilling; and the identical situation, of acceleration in inflation and recessionary measures to regulate such inflation, unfolds. The stagnation of the economic system due to this fact is more likely to turn out to be additional accentuated.
The widening of the commerce deficit at this juncture is probably the most ominous new improvement within the Indian economic system. The tendency in direction of stagnation was already there even earlier than the pandemic; what we then had as well as was an upsurge in inflation, globally and in India as nicely; and now now we have a widening of the commerce and present account deficit on prime of all this. The economic system briefly is getting engulfed in a disaster that’s changing into ever extra complete; and there’s no resolution to it throughout the parameters of neo-liberalism. (IPA Service)
Courtesy: Folks’s Democracy
The submit Finance Ministry Officers Glossing Over First Quarter GDP Estimates first appeared on IPA Newspack.
