GDP Numbers: Lies, Damn Lies & Statistics
Reading the UNABOM Manifesto, ‘Industrial Society and its Future’ by Theodore Kaczynski, it puts us into a black box as to whether economic growth is beneficial for the society, or we are just slaves to the ‘man’. The first line starts by saying the Industrial Revolution and its consequences have been a disaster for human race.
Before we look into the GDP data, we must understand a few things its does not reveal. As highlighted in the paper above, the Industrial Revolution has greatly increased the life expectancy of those living in ‘developed’ countries but have destabilised society and made life unfulfilling.
Indian economic growth touched a record high in the quarter through June, rising 20.1% in the three-month period, compared with a record contraction of 24.4% in the same quarter a year earlier. However, this is due to a concept called the base effect.
Let us understand with an example: Say, there's a fire in Company A's factory, for which the first quarter of 2020 results fell by 50% to INR 20 crores. Now, after a year, the company's profits normalised in line with other quarters at INR 40 crores. However, if we compare the same with previous years, it is a 100% rise, but you have to remember that the base in the previous year was low due to unforeseen circumstances. This is called base effect.
What we are trying to explain is that this growth should not be seen in isolation; It is either a cross sectional analysis (could be done on geography, demography, state of economy – developed, emerging) or it could be a simple past data analysis showing whether it has deviated from the existing trend
We should point out that growth in the current year was due to a lower base. Albeit, we must acknowledge the fact that the rebound came despite the drag from the deadly second wave of the coronavirus in late April stretching upto early June, which forced states across India to reimpose lockdowns and stop mobility completely from late April to early June. The economic activity has been reviving since July and has picked up momentum.
As pace of vaccination picks up, we expect the momentum to pick up further, although still remain wary on the evolution of delta variant cases and how that can dampen the economic activities if further lockdowns are imposed. Also, unclear messages from the developed Western World on vaccinations – US is proposing third round of vaccinations as a possibility and talks of emergence of a mutated ‘monster variants’ coming from CDC in case majority of population is not vaccinated are pandora’s boxes and we don’t know what the consequences it will bring.
Another negative from the recent data that springs up is the decline in jobs activities for women. In the past five years, roughly 2.6 cr women out of 7.44 cr in 2016 have dropped out of the labour force. This could be a huge concern for the country as a whole.
Another positive news is the output that came from agricultural and electricity, gas, water supply sectors which did relatively well as compared to even their 1Q 2019-20 levels. On the demand side, a positive outcome is noticeable in exports. But, the main disappointment comes from the contribution of the government sector, both from the demand and output sides. When you have an economic downturn, government spending supports the economy. They generally have the means to spend big on goods and services and can provide an impetus to growth. Unfortunately, government consumption expenditure contracted 4.8% from a year earlier.
According to the NSO data,
1. Gross value added (GVA) growth in the manufacturing sector accelerated to 49.6 per cent in the first quarter of 2021-22, compared to a contraction 36 per cent a year ago.
2. Construction sector GVA grew by 68.3 per cent compared to 49.5 per cent contraction earlier. Mining sector grew by 18.6 per cent, as against a contraction of 17.2 per cent a year ago.
Even, after considering all this, private consumption hasn't normalised yet as people might be cautious of the impending third wave. However, the current GDP numbers give us hope that the economy should be back to pre-pandemic levels soon.
Until then....