No thanks to the government

P Chidambaram writes: The government failed to show the boldness to spend and, if it was short of money, the boldness to borrow and spend.

On August 31, 2021, the Central Statistics Office’s (CSO) estimates on National Income were announced. The GDP number was indeed impressive — 20.1 per cent. There was an expectation that ‘we the people’ will be seduced by the numbers and the spin of the government.

Praise to the media and the people (save a few bhakts), they refused to be befuddled by the numbers and quickly realised the truth. The truth was that the growth rate of GDP (20.1 per cent) in the first quarter of 2021-22 was a statistical illusion because the ‘base’ was an unprecedented low of (-)24.4 per cent in Q1 of 2020-21. It was what Dr Gita Gopinath, Chief Economist of the IMF had, months ago, described as “mathematical growth”.

What People can Achieve

Nevertheless, we must welcome the growth of 20.1 per cent because it shows what a country and its people can achieve notwithstanding an insensitive and uncaring government. When there was a second wave of Covid-19 in the early weeks of the quarter (April-June 2021), the state governments managed the crisis without shutting down the economy. The contribution of Mr Modi’s government was its colossal failure to manage the supply and allocation of oxygen: the acute shortage for several weeks caused a large number of deaths (which number is believed to be for every death recorded at least 10 that went unrecorded).

The growth rate of 20.1 per cent was led by the people’s ‘private final consumption expenditure’. The people spent their money on consuming goods and services. It was Rs 17,83,611 crore in Q1 and marked a sharp increase over the Rs 14,94,524 crore spent in Q1 of last year when the country was hit by the first wave of the virus.

True Benchmark

There is another final consumption expenditure. It is the government’s. Imagine what would have been the result if government expenditure had kept pace with ‘private final consumption expenditure’. The former declined from Rs 4,42,618 crore in Q1 of last year to Rs 4,21,471 crore this year. The government’s contribution to the Q1 result was, therefore, negative. Nor did the government take effective steps to boost exports, which is one of the four engines of growth. ‘Net Exports’ too declined from Rs 34,071 crore in Q1 of last year to (-) Rs 62,084 crore this year. The growth rate of 20.1 per cent, albeit mathematical, was thanks to the people and no thanks to the government.

The government failed to show the boldness to spend and, if it was short of money, the boldness to borrow and spend. It should also have made cash transfers to 20 or 25 per cent of the families at the bottom of the pyramid; with that money, ‘private final consumption expenditure’ would have got a big boost. Together, enhanced government expenditure and increased private consumption would have vaulted the growth rate to over 25 per cent and thus made up for the slide of (-)24.4 per cent last year.

The numbers for Q1 of 2021-22 also reveal some serious weaknesses in the economy. The true benchmark is not 2020-21 (the pandemic year) but 2019-20 (the pre-pandemic year). The annual output that year was undoubtedly modest but nevertheless upwards. Are we there yet? The answer is no. Look at key numbers:

Key sectors of the economy have not yet attained the level of output of 2019-20. What is worse is the output in these sectors is below the level of output of the previous year, 2018-19. The only star performer is ‘agriculture’.

The numbers underline another conclusion that has been highlighted by observers, surveys and the CMIE’s reports but which the government has stoutly disputed: job losses. Millions of jobs were lost in 2019-20 because of the continuous slide in the economy (poor management). More jobs were lost in 2020-21 (pandemic). Those lost jobs have not come back in 2021-22. Remember also, the bulk of the employment is in the informal sector and in the MSMEs, and the CSO estimates do not capture, for the present, the performance of the informal sector or the MSMEs.

Clueless and Timid

The V-shaped recovery is a tiresome spin by the Chief Economic Adviser. When the quarterly growth rate declines from 5.1 per cent to (-)24.4 per cent, that will be depicted by the left incline of the letter ‘V’ and any small positive growth will be depicted by the right incline of the ‘V’. If the small positive growth persists quarter after quarter, the right incline will rise, but very slowly. That is a no-brainer. The real question is when will we attain the pre-pandemic level of GDP that was recorded in 2019-20?

The government can do a lot to accelerate the recovery but, as I have often said, it is clueless and timid. I was pleasantly surprised to find that a fawning newspaper carried an editorial on September 1 under the title ‘Spend, Government, Borrow and Spend’. I endorse that advice. That is the path to a quick economic recovery.

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