By Sushim Banerjee
Quite expectedly, GDP contraction of 7.5% in Q2 of FY21 was in line with the movement of major indicators during the period. For H1 as a whole, although the contraction is limited to 15.7%, a few positives can be picked up:
1) fish production, result of steady rainfall;
2) coal production, giving some relief to user segments, power and steel plants albeit at a higher price;
3) commercial vehicle sales even though in the negative category point to a growing demand from movement of goods and transportation sector which would take a few months more to return to pre-Covid level;
4) growing private vehicles sales signal a demand push from the urge of owning individual cars against public transport in the Covid scenario;
5) net tonne kilometres by railways has turned positive due to higher movement of goods, both essential and non-essential; and
6) steady growth in payment of LIC premium is indica– tive of a parsimonious house- hold behaviour.
It is good to see that while agriculture, forestry and fishing have maintained a uniform growth rate of 3.4% in both Q1 and Q2, the share of this sector in total GVA which was consistently coming down from 11.5%to11.2%inQ2oflast year, has since moved up to 12.5% in the current Q2.
It is also encouraging to observe that manufacturing sector has improved its share from 17.6% in Q2 of last year to 19.0% in the current Q2. The output index of manufacturing in September showed a marginal contraction, thereby taking the IIP into a positive corridor for the first time in FY21. In totality, the share of the service sector in the economy has dropped from 59.2% in Q2 of last year to 56.6% in the current Q2, while he share of industry has correspondingly moved up from 29.5% to 31.1% in Q2 of FY21. The growing share of industry has, in turn, boosted the commodity sector, steel and cement in the recent period. The labour intensive manufacturing sector, especially the MSME segment, is to generate more employment and income opportunities.
One primary driver in a demand deficient economy is the private expenditure as well as the government consumption expenditure.InQ1ofthe current fiscal, it was only the government consumption expenditure that went up to more than 18% share in GDP from 11.8% in Q1 of last year. This increase made up the reduced share of private consumption that went down from 56.4% in Q1 of last year to 54.3% and also a severe drop in share of fixed capital formation. The steep fall in government consumption expenditure, from 18.1% in Q1 to 10.9% in Q2, pulled down the total share of consumption to 65.1% from 72.4% in Q1 and 69.5% in Q2 of last year.
One of the major weaknesses in GDP growth in Indian economy is the limited fiscal space available for investment for creation of fixed assets. The concern for fiscal deficit crossing the safe limits of 3.5-4.5% of GDP to fuel inflation has always been plaguing policy- makers. The alternatives of FPI and FDI flows were not adequate to provide the booster. The share of GFCF in GDP went up from 22.3% in Q1 to 29% in Q2 (at constant prices) and to 25.7% from19.5% in Q1 at market prices.
The level of public investment in the economy needs a big push to reach 35% of GDP in the minimum. This continues to be a tall task. It is argued that more public investment in sectors like Infrastructure would only crowd in private investment that has been stagnating as a percentage of GDP in the last few years. The opening up of railways (DFC, private trains, etc), the liberalised defence procurement and acquisition, the high level of activities in shipping, afford- able housing and transportation of oil, gas and water (Jal Jivan Mission) offer abundant opportunities for the private sector to chip in and participate in infra investment.
(The author is Former DG, Institute for Steel Development and Growth. Views expressed are personal.Views expressed are personal)