Fleeting cheer (On impact of COVID on GDP and the future scenario)

Source: This post is based on the article “Fleeting cheer” published in The Hindu on 2nd September 2021.

Syllabus: GS3 – Economy

Relevance: Impact of the pandemic on growth

Synopsis: The latest GDP estimates show that national output rebounded in Quarter 1. However, the numbers show a different picture when compared with the pre-pandemic first quarter of fiscal 2019-20.

Introduction

National Statistical Office data shows GDP expanded 20.1% from a year earlier. All the eight industries spanning the broad agriculture, manufacturing and services categories posted positive growth. Also, the gross value added grew by 18.8%.

How the second wave has impacted the economy?

First, GDP at constant prices was estimated at ₹32.38-lakh crore, a 16.9% contraction from January-March’s ₹38.96-lakh crore and more than 9% of the ₹35.66-lakh crore in April-June 2019.

Second, with the exceptions of electricity and other utility services and the non-contact intensive services grouping of financial, real estate and professional services, all other six industries posted double-digit quarter-on-quarter contractions.

Third, private consumption spending showed year-on-year growth of 19.3% but still shrinking by 17.4% from the preceding three months.

Fourth, government consumption expenditure which has helped shore up the economy in the past, contracted 4.8% from a year earlier and 7.6% from the previous quarter.

What opportunities lie ahead for the economy?

Most states have gradually eased their localized second wave restrictions.

Exports have been one of the bright spots as the U.S. and other western economies have posted economic recoveries.

Manufacturing has surged almost 50% year-on-year. As per Manufacturing Purchasing Managers’ Index, the manufacturing sector experienced a second straight month of increase in production.

What are some future challenges?

Rising raw material costs: As per the PMI survey, rising raw material costs have been forcing manufacturers to either absorb the impact or raise prices. It is risking the prospect of an already weak demand.

Freeze on hiring: According to IHS Markit, uncertainty has led companies to freeze hiring. With monsoon rains in deficit, agricultural output and wider rural consumption also face a likely downturn.

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