Vijay Kumar Gaba

 The latest data published by the National Statistical Office (NSO confirms that India’s economic activity in FY22 has reached the pre pandemic levels of FY20. The Real Gross Domestic Product (GDP at FY12 prices), private consumption, government consumption, and gross investments in FY22 were at a marginally higher level than FY20. The exports and Imports in FY22 were more than 10% higher than FY20.

The Real GDP in FY22 grew 8.7% vs a contraction of 6.6% in FY21, and a growth of 4% in FY20. The growth in Real GDP in 4QFY22 was much slower at 4.1%.

Media and government officials have reported the growth numbers in a context of their own liking. Some have taken pride in India achieving the fastest growth rate amongst the larger global economies. Some have expressed relief that the Indian economy has recovered fully from the pandemic impact and attained the pre pandemic level of economic activity. Some celebrated this as a “V” shape recovery of the economy. Some expressed concern over slower growth in 4QFY22 and poor growth outlook for FY23. Many global agencies have downgraded their estimates of FY23 growth for India.

In my view, comparing India’s growth trajectory to global peers is meaningless, as the socio-economic profile of India (particularly demography and people living below poverty line) may be very different from the developed or even developing economies like China. A fair comparison, if at all needed, would be to compare with the growth rate of those economies when they had similar demographics and poverty levels; adjusted for the available resources (financial, human, and other natural resources) for future growth.

Our competition is with ourselves only

Also, it is important to note that this 8.7% number is a purely statistical phenomenon that is impacted by the base effect. Since the growth in FY21 was a negative number (-6.6%), the FY22 growth is statistically looking stronger. There is no denying that the Indian economy has shown resilience. The government has been able to limit the impact of the pandemic to a material extent. But a better way to look at growth would be to compare it with the “Required growth Rate” (RGR) to achieve full employment and eliminate poverty in, say, the next two decades. The RGR must also account for the costs to be incurred over the next couple of decades for improving the sustainable quotient of the economy, and achieving the sustainable development goals (SDGs).

Urgent need to exploit the demographic dividend

The demographic profile of India warrants extreme urgency in accelerating the growth rate to RGR. As per the latest available Periodic Labour Force Survey (PLFS 2018), almost one third of skilled youth in the country are unemployed. The rate of unemployment amongst skilled female workers is even higher. The situation is widely believed to have worsened in the past three years due to the pandemic.

My experience indicates that if a college graduate does not get employed in accordance with his/her skill level within 2yrs of graduating, the probability of his remaining underemployed for life increases manifold. It is therefore important that India achieves RGR urgently so that 8 to 12 million youth who are joining the workforce every year get employed appropriately. Else, we will continue to lose the benefits of demographic dividend, which has been one of the primary factors in many countries graduating to the middle class of wealthy economic status.

Focus on long term growth trajectory

Rather than focusing on quarterly numbers that may be materially impacted by some non-recurring factors (Drought, flood, lockdown, monetary or fiscal action etc.) it is important that we focus on the long term growth trajectory of the economy. For example, a 5yr CAGR of real GDP may be a better indicator of sustainable growth potential of the economy. This long term growth rate may adequately account for the sustainable level of economic activity and capacity building for the future growth.

The long term growth (LTG) trajectory (5yr GDP CAGR) has been declining since the global financial crisis (GFC 2008). It had shown some signs of improving in FY15-FY19, but the pandemic has pushed it down again. The economy had a LTG of 9% in FY08, which declined to 7% - 7.5% during FY13-FY19. The present LTG is less than 4%; and the Indian economy is expected to regain even the 6% LTG trajectory not before FY27.

For record, the LTG during the past 8yrs (FY15-FY22) is 5.2%.

Obviously, the economy has some serious challenges to surmount, and there is no scope for any complacency.