Correct prescription to revive the economy — a course that the Modi government

The numbers that have brought a smile on the face of the government are what are called ‘high frequency indicators’ such as tax collection, UPI volume, e-way bills (volume), railway freight traffic, electricity consumption, etc. They are numbers, not people, and certainly not people dependent upon the informal sector of which we have no data or people lower down in the economic pyramid.

Premature Celebration

It is a sobering thought that while the officials of the Ministry of Finance were gloating, the other ministers and ruling party MPs were silent, and the people were not exactly celebrating! The CSO estimates-inspired headlines vanished in a day or two and what re-occupied the space were the prices of petrol, diesel, cooking gas, tomatoes, onions and the lack of customers in Market Street.

The same CSO estimates pointed to the fact that people were not buying enough and consuming enough. Private consumption is the foremost engine — among the four engines — of growth. It accounts for nearly 55 per cent of GDP. Let’s consider the numbers of private consumption in the pre-pandemic years (2018-19 & 2019-20), the pandemic-affected year (2020-21) and the so-called recovery year (2021-22):

Private consumption in the pre-pandemic years

Private consumption in both Q1 and Q2 of the current year is still lower than private consumption in 2019-20; what is worse is that the half-year total of consumption is lower than the half-year total of 2018-19. Further, total GDP for the half year 2021-22 is Rs 68,11,471 crore as against Rs 71,28,238 crore in 2019-20; there is still some catching up to do before we reach the pre-pandemic level of output.

Economising on Expenditure

Why are people consuming less in the so-called recovery year than in the immediate pre-pandemic years? There could be many reasons, that will apply to the bulk of the population:

• people are poorer in terms of per capita income;
• people have lower incomes;
• people have lost their jobs;
• people have closed their businesses;
• people have less disposable income;
• people are deterred by high prices;
• people are saving more.

In my view, “all of the above” is perhaps the correct answer. Data show that many have lower incomes, many have lost their jobs, many have lower disposable income because of higher taxes (fuel taxes, GST rates) and many businesses have shut down. It is also likely that many people are saving more out of fear of being infected by coronavirus.

I have found in my conversations with families that the fear is ‘what if I or someone in my family is infected by the virus’. It is a genuine fear because, according to the figures published every day,…