The latest GDP and GVA estimates from the Office for National Statistics have confirmed that the economy is now on a recovery track after the record contraction of the last fiscal. second trimester GDP up 8.4%MILF rebounding from 7.4% contraction from year-ago period, While the statistical gains from the base effect certainly aided the expansion, the economy has gained substantial momentum for GDP to register a modest 0.3% growth compared to the second quarter of the pre-pandemic 2019-20 fiscal year. is to do. Gross value added figures, which capture the range of activity in the eight major formal sectors of the real economy, also underline the improvement, with the July-September 2021 GVA figure registering a 0.5% expansion from July 32.89-lakh crore. -September 2019 period. Five of the eight sectors not only posted growth from the year-ago quarter but also outperformed the pre-COVID-19 performance. Manufacturing, which accounts for the second largest share of GVA, has gained traction again and was a stronghold of GVA, registering a 3.9% expansion from the pre-pandemic second quarter of FY20. Key job-providing services categories, however, are yet to fully recover from the devastating impact of the pandemic, and construction, along with another major provider of jobs, has cumulatively lagged pre-pandemic levels of ₹77,000 Ten million. With the potential impact of the Omicron variant a big unknown, the outlook here may remain hazy for now.
A different view of the GDP figures also reveals areas of concern that could undermine the recovery. Private final consumption expenditure, which measures spending by all consumers on the entire gamut of goods and services from essential goods to luxury goods and services, and accounts for the largest 55% of GDP, is still treading water. With pandemic-induced uncertainty, reduced or lost income, demand continues to slump and consumer spending still remains just shy of 3.5% of pre-COVID levels. Government consumption spending, which has often been a reliable alternative source of demand with the potential to act as a multiplier, is also well below the second quarter of FY20, possibly by design, as the Center seeks to strengthen its fiscal position. Is. Unless aggregate demand strengthens, encouraging growth in business investment, as reflected in an 11% year-on-year jump in gross fixed capital formation, may subside with capacity additions and corporate captains re-opening their wallets. Strings are tightened. Manufacturing PMI data by IHS Markit has another beneficial caveat: rising input costs could force manufacturers to raise prices, adding to general inflationary pressures in the economy and weakening recovery. Policymakers need to step up demand-supporting measures, including increasing government spending, to ensure that the recovery continues and gains traction.
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