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Saturday, November 28, 2020

GDP: Emerging from Covid slump (The Economic Times)

The good news from GDP numbers for the second, July-September, quarter is that economic contraction has come down to 7.5% from almost 24% in the first quarter.

To contain contraction for the year as a whole to 10%, the fall in GDP for the second half of the fiscal must be contained at 4.5%. The growth that is underway is more than likely to achieve this target, assuring that negative growth for 2020-21would be well below 10%.

Especially if the government makes good on its stimulus promises. A word of caution, though. The pick-up in economic activity in September and October that was led by pent-up festive demand has moderated since. 

The growth in electricity consumption, labour participation and eway bill volumes has softened a shade. This strengthens the case for a stimulus all the more, to sustain momentum. The difference between nominal and real GDP growth is a measure of economy wide price changes.

It is somewhat troubling that this has been a positive 3.5% even as the economy contracted. The change in the wholesale price index has been only 0.9%. Cascading fuel taxes and lockdown-related logistical bottlenecks could be responsible for rising prices in the midst of an economic slump and declining pressure on the currency, thanks to moderate global crude prices and a compression of the current account deficit.

There must be no more talk of lockdowns, and restrictions on movement of goods must be avoided in toto. Gross fixed capital formation as a proportion of GDP, in current prices, has, at 25.7%, recovered from Q1’s disastrous 19.5%, but is still below the levels we saw last fiscal, these themselves being well below the desirable 30%-plus. This, too, brings us to the need for another strong dose of government-led investment.

Expenditure on public administration, defence and other services declined in Q2, compared to Q1: 11.9%, compared to 19.1%. While the tendency is for individuals to cut expenditure when revenues dip, governments cannot afford to follow that logic. It is their job to make countercyclical interventions.

Courtesy -  The Economic Times.


Help Sampadkiya Team in maintaining this website

इस वेबसाइट को जारी रखने में यथायोग्य मदद करें -

-Rajeev Kumar (Editor-in-chief,


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