The GDP numbers for the June quarter should not have surprised anyone. The April-June period was the peak of the Covid-19 lockdown. Why, global economies suffered huge contractions, with the UK topping the list with more than a 20 per cent drop in the second quarter. Of course, that can be no consolation to anyone feeling hard done following a record 23.9 per cent drop in growth in the June quarter.
In the last 40 years, the GDP had not slipped into the negative territory even once. The coronavirus pandemic being a black swan event, the challenge for policymakers is to find ways to minimise its effects on the economy. On this score, however, there is little agreement. Despite a couple of well-publicised relief packages, there is wide consensus that the government needs to do much more to spur consumer demand.
Companies and consumers alike are hit by income depression. Uncertain future in the absence of a vaccine to tackle the rampaging virus has caused consumers and companies to conserve resources. Even after the gradual reopening of the economy, demand continues to be listless. Admittedly, the second quarter numbers will be better but there will be a year-on year shrinkage in this quarter as well.
Surprisingly, data for employment for the month of August points to a fall, while the previous three months had registered an uptick. The unemployment rate was higher in August as against the previous month. One ray of hope was the manufacturing purchasing managers’ index, which in August, was higher after five months.
Aside from agriculture and allied sectors, which grew 3.4 per cent in the April-June quarter, no sector of the economy stemmed the sharp deceleration in growth. Revenue collection in the quarter registered a precipitous drop, with 53 per cent lower GST. Expenditure, on the other hand, grew exponentially. At over Rs 6.62 lakh crore till end-June, fiscal deficit had already logged 83.2 per cent of the total budgeted target for the full year. And remember, we are still in the second quarter. Such grim numbers call for further fiscal stimulus to spur demand.
The monetary side measures have been exhausted, consumer inflation constricting space for a fresh easing of rates. Though the options of the government are limited, the promised package to spur growth needs to be unveiled soon. A lot depends on the intensity of the pandemic and its likely retreat. If it continues unchecked, despite selective lockdowns across the country in badly-hit pockets, the economy will have a tougher time regaining momentum.
On the whole, this year is set to see the worst growth in decades, with the GDP estimated to shrink between eight to ten per cent. We all are expected to tighten our belts further.