The economy may now be ready to return to the normal growth path with the latest quarter figures coming in just when the nation-wide vaccination drive to immunise the people against the Covid-19 virus got underway. A lot is also riding on the success of the vaccination drive for the economy to build on further from the 0.4 per cent growth in the third quarter of the current financial year, after two quarters of big contraction. Gross value added (GVA) grew by one per cent in the last quarter.
Simply put, all things considered, the worst seems to be behind us. After 15.9 per cent contraction in the first half of 2020-21, growth is expected to flatten out in the second half, as per the advanced estimates. Without doubt, the main driver is stepped up government expenditure, not only on pandemic-related activity but in boosting demand and employment in key sectors such as construction, roads, highways, etc.
Even the private real estate sector is returning to the growth path, thanks to benign interest rates, incentives offered by developers to offload pending inventory and sops by banks to boost credit in the relatively secure middle-and-upper-income segments. A number of state governments have helped by lowering the circle rates for land, as also the stamp duty on property registration.
The farm sector is another beacon of hope, growing about four per cent in the last quarter and set to record three per cent growth in the full year. A good monsoon, high crop yields and food inflation boosted rural incomes. Maybe one reason for the sluggish response elsewhere in the country to the protest by Punjab farmers over the farm legislations has been the good crop this year. Still, it will help if the government on its own made the gesture, suspended the implementation of reforms till after the Supreme Court-appointed panel of experts submitted its report. Sullen and angry farmers in a key state do not help anyone.
Back to the growth numbers. Manufacturing too was back on track, recording 1.6 per cent in the third quarter, suppressed demand due to prolonged lockdowns finding a release after the graded opening. The sector is set to regain normalcy, though new pressure points in creeping protectionism and high fuel prices could prove a drag. The case for reducing taxes on fuel both by the Centre and the states remains strong, especially when relatively moderate prices of energy can boost growth and arrest inflationary pressures in the economy.
As it is, fears of inflation are beginning to spook share markets. Rising bond yields too are a negative pointer. High energy and food prices would inevitably cause the Central bank to step in to honour the commitment to hold the consumer inflation within the 4-6 per cent band. In turn, a higher bank rate would have a negative impact on growth. Given that the informal sector was still reeling under the devastating effect of the pandemic, small businesses, which employ an inordinately large number of people, will suffer further if steps are not taken to revive them. Of course, a lot depends on the success of the vaccination programme which got underway on March 1.
Despite several hitches reported in the working of the online registration for taking the jabs, it is hoped that the countrywide operation will succeed in removing the fear of the virus. At a minimum, a third of the population needs to be vaccinated before we can attain herd immunity. States like Kerala and Maharashtra, which are in the grip of a resurgence, can avoid lockdowns only if the immunisation programme is implemented smoothly.
Happily, the price of the vaccine is unlikely to prove a dampener, though state governments ought to give it completely free to the poorer sections, on a priority basis. Poor people everywhere have suffered the most in the pandemic, having lost their livelihoods and accounting for a high percentage of the Covid-19 infections. It is important that growth regains momentum at the earliest. Government spending will need to drive growth not only in the current financial year but the next as well. Fortunately, the government faucet remains wide open, set to release Rs 6 lakh crore in subsidies alone in the current financial year. Under the circumstances, reluctance to cut fuel levies may be better appreciated.