In free fall gdp contraction indicates public investment is needed to trigger a revival

In free fall gdp contraction indicates public investment is needed to trigger a revival

The economy shrank in the April-June quarter by 23.9%, an unprecedented fall. It provided the first overview of the extent of the economic damage on account of the outbreak of Covid-19 and subsequent lockdowns. The data needs to be viewed in context. Gathering of data was disrupted by the pandemic, resulting in improvisations. Moreover, formal sector data is used extensively to proxy the fortunes of the informal sector. The damage to the informal sector is likely much worse.

India is possibly the worst performer among major economies. China, now challenging India across the LAC, actually expanded its economy by 3.2% in April-June. The UK was among the worst hit, witnessing a contraction of 20.4%. The US, the world’s largest economy, shrank by a manageable 9.5%. Thus India’s situation is unconscionable, as it’s also low down in terms of per capita income. The granular GDP data suggests that except for agriculture, which expanded by 3.4%, other job intensive segments were badly affected. Construction and manufacturing shrunk 50.3% and 39.3% respectively. The bulk of non-financial services sector such as hotels and trade shrank by 47%.

Government must move to revive the economy on a war footing. The first stimulus package focussed on creating favourable conditions for bank lending. That may not be working. Fixed investments dropped 47.07% in the first quarter to Rs 5.99 lakh crore. The only support for the economy came through an expansion of government consumption by 16.35% to Rs 4.86 lakh crore. The way out is for government to take the lead in reviving investment through public infrastructure projects. This can crowd in private investment and start a virtuous cycle. The Centre will also need to implement radical economic reforms for sustainable growth.