A short analysis of `Estimates of Gross Domestic Product
for the First Quarter (April-June) of 2021-22’
Rohit Kumar Parmar Free lance [1]
IES (Retd)
Former Senior Economic Adviser
Ministry of Consumer Affairs, Food and Public Distribution
Estimates of GDP have highlighted high percentage of growth from a low base as a positive, but are silent on other important indicators, which are negative.
Positives
GDP at Constant (2011-12) Prices in Q1 of 2021-22 increased by 20.13 percent compared to a reduction of (-) 24.43 percent in Q1 2020-21.
Negatives
GDP at ₹ 32.38 lakh crore for Q1 2021-22 is lower by (-) 16.90 per cent from the previous quarter of ₹ 38.96 lakh crore (Q4 2020-21).
GDP at ₹ 32.38 lakh crore for Q1 2021-22 after an increase of 20.13 per cent is, however, still lower by (-) 9.22 per cent from the level of ₹ 35.67 lakh crore in Q1 2019-20.
Per Capita GDP at Constant (2011-12) Prices in Q1 of 2021-22 at ₹ 23,826 is (-) 11.13 percent lower than ₹ 26,812 in Q1 of 2019-20. The average income of an Indian decreased by (-) 11.13 percent, so he is poorer. If you are in the unorganised/small/medium sector or have been laid off for part/whole of the year, or are digitally deprived, then your income would have decreased by a higher percentage.
I. Introduction:
Government of India, on 31.08.2021 released `Estimates Of Gross Domestic Product For The First Quarter (April-June) Of 2021-22.’ [2]
The key highlight is that GDP at Constant (2011-12) Prices in Q1 of 2021-22 increased by 20.13 percent compared to a reduction of (-) 24.43 percent in Q1 2020-21.
The highlight is silent on the following facts
i. GDP at ₹ 32.38 lakh crore for Q1 2021-22 is lower by (-) 16.90 per cent from the previous quarter of ₹ 38.96 lakh crore (Q4 2020-21.
ii. GDP at ₹ 32.38 lakh crore for Q1 2021-22 after an increase of 20.13 per cent is, however, still lower by (-) 9.22 per cent from the level of ₹ 35.66 lakh crore in Q1 2019-20.
iii. Per Capita GDP at Constant (2011-12) Prices in Q1 of 2021-22 at ₹ 23,826 is (-) 11.13 percent lower than ₹ 26,812 in Q1 of 2019-20. [3]
As argued earlier [4] a first step to restoring growth rate to 2016-17 level of 8.3 is to start reporting the level of GDP and of per capita GDP as a percentage of the 2019-20 level, which is not being done. There is an illusion of higher growth rate (20.13 percent) when individuals are poorer compared to the level of 2019-20.
Comparisons when reported should be with both the previous quarter and also the corresponding quarter of the previous year. For an individual, the salary this month (quarter in the case of GDP) preferably needs to be compared to the salary in the previous month, which is closer (quarter in the case of GDP) and maybe with the distant in last year. Individual will not be happy with a salary higher than the previous year, which is lower than the salary of last month.
II. Quarterly reporting of GDP:
Quarterly reporting of GDP has built-in limitations because it is based on narrow reporting. Further, changes (and so associated growth) in GDP are subject to cyclical movement. Quarterly estimates also do not report per capita changes in GDP, which are essential to understand the impact on the income of the individual/family, more so during the Covid crisis. Government does not make available the entire time series to facilitate an analysis to understand any seasonal patterns. Government prefers to highlight items, which show a better performance, even though the same are an illusion, but choses to be silent on the negatives.
Any performance, especially very high or low in terms of quarterly numbers, needs to be carefully interpreted. Additionally, reporting of growth rates from low base/s tends to exaggerate the level/performance of the economy.
III. Upward skew of Quarterly estimates:
The Covid crisis has had a disproportionately greater impact on wage earners, self employed and similar groups; informal, unorganised, tiny and small sectors. There has been a strong digital divide with sections of the population, who do not have access to digital systems/devices/networks/payments, receiving lower earnings or totally losing them. (hereinafter referred to as the listed groups)
The listed groups have had to bear the cost (time, money and loss of earnings), because of the (avoidable) several digital initiatives that the government claims to be launching, discontinuing the hitherto prevalent systems (either non-digital or requiring lesser digital systems/devices/networks).
In contrast business relying on/and providers of digital systems/devices/ networks/payments having been raking in disproportionately higher revenues and profits, which inter-alia has implications on the income distribution, skewing the same against the digitally deprived group.
The above impact has been observed even amongst the relatively elite Supreme Court lawyer group. Recognising that young/lawyers and those without access to digital systems/devices/networks, have been adversely impacted by holding of virtual hearings, Supreme Court has restarted limited physical hearings. [5]
We all can recall purchases (service or goods) that have either been shelved or indefinitely postponed, each one of which would impacted the earnings of the listed groups in this discussion.
The earnings of the listed groups contrasts with that of the organised sector (bureaucracy, public sector, autonomous organisations, academia and research, judiciary, elected representatives, digital system providers, government contractors, etc.) most of whom continued with the same wages/earnings and worked from home.
The GDP estimates, as per the release by the government primarily capture the formal sector, as explained in the note and extracted below:
`…Index of Industrial Production (IIP),
Monthly accounts of Union and State Governments expenditure maintained by Controller General of Accounts (CGA) and Comptroller and Auditor General of India (CAG) respectively for the period April-June 2021...
Performance of key sectors like Transport including Railways, Road, Air and Water Transport etc., Communication, Banking and Insurance during this period has been considered while compiling the estimates,
Performance of the corporate sector in the first quarter based on data received from BSE/NSE has also been taken into account,
Additional data sources like GST data, e-way bills have also been put to use,
The latest information on the website of Controller General of Accounts (CGA) and Comptroller and Auditor General of India (CAG) have been used for estimating taxes on products and subsidies on products at Current Prices…’
No item in the above list relates to information of wage earners or self employed and similar groups; or loss/reduced employment and/or employment at lower wages; reduced self employment and lower earnings from self employment; impact on the informal, unorganised, tiny and small sectors; and sections without access to digital systems/devices/networks/payments, who have had larger reduction in earnings. The estimates released by government primarily capture the formal sector, resulting in an upward skew by ignoring the listed groups.
The listed groups have suffered during the lockdown with no work (self and/or wage employment), wages and/or earnings, followed by lower level/s in the phased periods of unlocking. The listed groups also suffered the higher cost of fuel (petrol, diesel and recently gas), cess on several of the products they consumed and due inflation, especially food inflation which was much higher. In several cases they have had to incur expenses on treatment, including for Covid due to the failure of the public health system.
The declining GDP and per Capita GDP levels and growth rates, suggests a sharp slowdown in the rate of reduction of poverty ratio; possibly an increase in absolute number of poor and the poverty ratio. The irony with the poverty ratio and numbers is that the 75th round of the National Statistical Office consumer expenditure survey (2017-18) was not released, because of quality issues. The next Consumer Expenditure Survey (CES) supposed to be in 2020-2021 and 2021-22 after incorporating quality refinements in the survey process would have provided poverty numbers by 2023. However, the next CES will be impacted by the Covid crisis and is likely to delayed and it is unlikely that any numbers will be available before 2024.
The listed groups along with others have also been impacted because food prices increased by over 25 percent, implying at least a proportionate reduction in (food) consumption.
Despite all the above, government choses to continue in a manner `business as usual’ adding to (cost push) inflation, increasing taxes especially through cess, deficit and borrowing. All this is happening in the backdrop of lowering overall incomes, which is more for the poor, increasing ratio and absolute number of poor, increasing income inequality. All the above have the potential of impacting growth of the economy.
There is a need to sharply cut fuel prices, government expenditure, reduce tax burden on the poor, abort/postpone (avoidable) digital initiatives, take steps to simplify procedures to make economy competitive and move towards the path of growth. An uncompetitive economy driven by excess government spending is not a sustainable one.
[1] Author has in posts on his website (https://rohitkparmar.wixsite.com/site), twitter (https://twitter.com/rohitkparmar?s=09), facebook (https://www.facebook.com/rohit.parmar.5268750/), linkedin (https://www.linkedin.com/in/rohit-kumar-parmar-841b4724) been writing on impact of Covid and can be reached at rohitkparmar@yahoo.com. [2] http://mospi.nic.in/sites/default/files/press_release/PRESS_NOTE-Q1_2021-22.pdf [3] Authors projection based on trends adopted in the annual numbers by CSO, necessitated because CSO does not report Per Capita numbers in the quarterly estimates. [4] https://rohitkparmar.wixsite.com/site/post/india-s-economic-financial-and-social-performance-an-analysis-of-reasons-for-pre-and-post-covid [5] https://timesofindia.indiatimes.com/india/after-17-months-supreme-court-to-resume-physical-hearing-in-a-limited-way-from-september-1/articleshow/85753674.cms
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