Do it yourself

The precipitous fall in 1QFY21 GDP has attracted attention of most people. The economic managers of the government have sought to pass 23.9% yoy contraction in real GDP as an exceptional event which is direct outcome of the global lockdown due to outbreak of COVID-19 pandemic. Indubitably, the contraction is a non recurring event and may not be a trend beyond FY21. Nonetheless, adjusted for lockdown also, the current slowdown does not appear be entirely cyclical. It certainly has some element of structural weakness in the economy. I have highlighted this issue earlier also. In my view, the fall in nominal GDP is more worrisome than the real GDP. This fall has been more consistent and sharp in past 7 years. The nominal GDP growth rate has almost halved during FYFY13 and FY20. For common man nominal GDP is more important because lot of variables like effective taxation, budgetary allocations for development and social welfare, subsidies, salaries of public servants, etc are cal...

The 4QFY20 economic data has again highlighted the points, I have been emphasizing for past many quarters, which is- (i)     The economic growth in India has been declining structurally since the global financial crisis (GFC) of 2008-09. For couple of year, monetary and fiscal stimulus given by the extant government to mitigate the impact of global crisis supported the growth. However, post FY13, the growth trajectory never looked like retracing to pre GFC levels. A strong number in FY22 would be purely a base effect.   (ii)    The long term growth curve in India has shifted down. The potential growth in India is no longer 8% plus. The pivot is somewhere close to 6%. (iii)   The global deflationary pressures are causing the nominal growth curve to shift down even more than the real growth. It is pertinent to note that a sustained fal...