Perspectives from ISB

Dr.Sridhar Kundu

Senior Research Analyst, Bharti Institute of Public Policy, Indian School of Business

The COVID-19 pandemic brought the world economy to a standstill. The World Bank (2021) data shows that world economic growth (Gross Domestic Product at constant prices) fell by 3.3 per cent during 2020 from the previous year. Large economies such as the United States and China were not spared. The US economy registered a negative growth rate of 3.4 per cent, and China’s growth was about 2 per cent in 2020. A lower rate of economic growth added to a higher rate of unemployment sunk the development process. World unemployment was as high as 7 per cent in 2020, according to the World Bank (2021). The unemployment rate in China and US was 6 per cent and 8 per cent, respectively.

The Indian economy was not free from all the key macroeconomic challenges. This blog discusses the macro-economic scenario of the Indian economy, emphasising the situation during the post COVID -19 period. The primary objective of this write-up is to understand the trend which would help stimulate monetary and fiscal policies to address the concern areas.

  1. Economic Growth

The growth of GDP and per capita income are critical indicators to explain the economic growth of a country. The Central Statistical Organisation (CSO) of the Ministry of Statistics and Program Implementation (MOSPI), Government of India, provides information about GDP and its sector composition, such as agriculture, manufacturing, mining and industry, trade, and services. The CSO offers quarterly and annual GDP estimates and value addition from the constituent sectors at current and constant prices. GDP at constant prices is a better indicator to judge economic growth as these figures are not duly affected by the rise in the price level, known as inflation.

Figure1. The annual growth rate of GDP at 2011-12 constant prices

Figure2. The quarterly growth rate of GDP at 2011-12 constant prices

According to the updated CSO estimate as on November 30, 2022, India’s GDP (at constant 2011-12 prices) registered a growth rate of 8.7 per cent.  In 2020-21, the year of the COVID-19 pandemic, GDP growth (at constant 2011-12 prices) fell by 6.6 per cent from the previous year. Even during 2019-20, the GDP growth rate was lower at 3.5 per cent compared to its previous years’ growth rate as its last quarter, i.e., January-March,2020, was partially affected by the COVID-19 pandemic.

A higher growth rate of 8.7 per cent during 2021-22 (AE) does not seem to be a comeback of normalcy for the following reasons,

A1. Base year effect– The annual GDP growth rate for a particular year is estimated using the previous year as the base. With the low base of GDP value for 2020-21 due to economic downfall, the estimated growth rate shown during 2021-22 stands high.

A2. Lower rate of average growth– The average growth rate of the last two years, i.e., 2020-21 and 2021-22, is just 1.5 per cent. However, the annual average growth rate of GDP stands above 6 per cent between 2011-12 and 2018-19, which are the normal years.

However, the bright side of the economy today is that there is optimism for sustained growth in successive years. The first two quarters, i.e., April-June and July-September, of this financial year already attained a higher growth rate of 6.3 per cent and 14 per cent, respectively. The IMF (2022) forecast shows India could achieve a growth of about seven per cent 2023 and sustain an annual growth rate of over six per cent until 2027.

  1. Unemployment-The unemployment rate is defined as job seekers as a percentage of the total number of people in the workforce. The National Sample Survey Organisation (NSSO) conducts quarterly periodic labour force surveys at Current Weekly Status (CWS) and annual surveys in both Usual Status (US) and CWS. The last updated information on unemployment by NSSO is available for 2020-21.

On the other hand, the Centre for Monitoring and Indian Economy (CMIE), a private institution, provides information about daily, weekly, and monthly unemployment on a real-time basis. According to data from CMIE, unemployment in India stands at 7.8 per cent as of November 30, 2022.

Figure3. The rate of unemployment (%) in India

The monthly unemployment trend over the last few years, provided by CMIE shows that the unemployment rate on November 30, 2022, stands higher than the rate of unemployment of 7.6 per cent recorded on November 30, 2020. The November 2022 unemployment situation in rural areas is worse than that of urban areas.

  1. Inflation

The Consumer Price Index (CPI), the Wholesale Price Index (WPI), and the GDP deflator measure price inflation. The CPI inflation is a better measure for explaining the change in the cost of living as it provides a more considerable weightage to prices of daily consumable commodities paid by the households. The Labour Bureau, Government of India, provides updated information about CPI inflation which is made available by the Ministry of Statistics and Program Implementation (MOSPI).

Figure4. The CPI inflation in India

Source: MOSPI,2022

The latest information from MOSPI shows that today’s price situation is like the COVID-19 period. The CPI inflation (combined) has reached 6.8 per cent, 7 per cent in rural, and 6.5 per cent in urban areas as of October 2022. During October 2022, the CPI inflation (combined) was 7.6 per cent, 7.8 per cent for rural, and 7.3 per cent for urban.  However, the price situation during October 2021 was better as CPI inflation (combined) was 4.5 per cent, 5 per cent for urban, and 4.1 per cent for rural. The CPI inflation trend shows that the October 2022 price situation is worse even in the last eight years barring October 2020.

In conclusion, the present status of macroeconomic indicators shows that the Indian economy is yet to return to its normal pre-COVID-19 stage. There is good continuity in the growth process in 2021-22 and beyond. However, unemployment, particularly in rural areas, is a crucial concern. Again, the higher rate of price inflation, which increases households’ cost of living, adds to unemployment.

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