Consumption worry gdp numbers show per capita private consumption is below pre pandemic level govt support is needed

Consumption worry gdp numbers show per capita private consumption is below pre pandemic level govt support is needed

India’s GDP in the January-March quarter of 2021-22 grew 4.1% to Rs 40.78 lakh crore. It took the growth rate for 2021-22 to 8.7%. which led to a GDP of Rs 147.35 lakh crore, a level higher than the pre-pandemic period. This was, however, inadequate to offset two worrisome trends. One, Q4 2021-22 growth is far lower than what was forecast a few months ago. So, Omicron plus the beginning of the Ukraine war had a big impact. Two, private consumption in per capita terms remains below the pre-pandemic period, a measure of the unevenness in recovery.

RBI in December estimated Q4 GDP growth would be 6%. At 4.1%, growth is almost two percentage points lower, which gives a sense of the extent to which the economic environment has worsened in the last few months. Other than the Omicron wave, the partly war-induced surge in global commodity prices is the most significant influence on fourth quarter results. Unlike Omicron, this impact will last longer. The consequence of these developments is that per capita private consumption in 2021-22 was Rs 61,215, a level lower than the Rs 61,594 recorded in 2019-20. It’s the most telling indicator of weak demand.

The most positive aspect of the fourth quarter result was the healthy growth in fixed investment over the pre-pandemic period. At Rs 13.7 lakh crore, it was 15.8% higher than the level two years ago. This growth was helped by a similar surge in government expenditure. Government expenditure will have to continue supporting economic growth as RBI’s monetary policy is tightening fast to stave off a second-round impact of elevated inflation. Fiscal support won’t worsen debt sustainability as high inflation has pushed up nominal GDP and tax revenue. For instance, GoI’s net tax revenue of Rs 18.2 lakh crore in 2021-22 comfortably exceeded the year’s revised estimates.