THE GIST of Editorial for UPSC Exams : 02 September 2020 Inevitable collapse: on steepest contraction of GDP (The Hindu)

Inevitable collapse: on steepest contraction of GDP (The Hindu)

Mains Paper 3: Economy 
Prelims level: Dynamic nature of personal data
Mains level: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment

Context: 

• India’s GDP suffered its steepest contraction on record in the April-June quarter, as output shrank 23.9% from a year earlier, provisional data show.

Grim scenario:

• It is evident that the stringent COVID-19 lockdowns in force through the first third of the quarter, and substantially in May, hollowed outdemand.
• Private consumption spending, which accounts for almost 60% of GDP, contracted 26.7% as consumers abjuredalmost all discretionary spending.
• And exports, which contribute to a fifth of GDP and reflect overseas demand for Indian goods and services, shrank by nearly 20%.
• Investment activity was the worst-hit, collapsing 47% and shrinking in share of GDP to about 22% from 32% a year earlier as larger businesses conserved cash and refrained from any capital spending in the face of uncertainty, and smaller firms prioritised survival.
• Across the real economy, every single industry and services sector shrank with the solitary exception of agriculture, which grew 3.4% and outpaced the year earlier quarter’s 3% expansion.
• Construction suffered the most, plunging50%, followed by the omnibusservices category — trade, hotels, communication, transport and broadcasting — which shrank 47%, hit by the pandemic-linked restrictions.
• Manufacturing too took a severe beating, contracting 39% as demand for products deemed non-essential evaporated, and factories, even after reopening, struggled to run amid shortages of labour and added safety norms.

Dilemma:

• It was left to the government to keep the bottom from falling out on demand as the Centre’s pandemic mitigation expenditure helped expand its consumption spending by 16.4% year-on-year and softened the overall blow to GDP.
• The fiscal deficit has already exceeded the full-year’s budgeted target in just the first four months, and also the revenue receipts are impacted by the economic contraction.
• Given the situation, the government is unlikely to maintain a similar trend in expenditure growth over the next three quarters.
• Unless, of course, it is prepared to forsake its vauntedfiscal conservatism and finds innovative ways to mobilise resources.
• The still rising trajectory of new COVID-19 infections and a high level of job losses and income erosion are also sure to retard any recovery in momentum.
• If the latest survey-based data from IHS Markit show manufacturing PMI for August signalling growth for the first time in five months, the same researcher’s findings also stress that “job shedding continues at a strong rate” in the industry.
• Equally significantly, the output numbers which are expected to undergo revision given the acknowledged difficulties in collecting data, do not capture a swathe of informal sector activity that was severely impacted.
• Agriculture too faces headwinds in the form of higher-than-ideal rainfall in August in several key crop growing regions in western and central India.
• And with the impact of recent farm market ordinances yet to play out, it may be a while before the end of the tunnel is sighted.

Conclusion:

• With COVID-19 hitting private consumption, demand recovery willhingeon govt. spending.

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Prelims Questions:

Q.1) With reference to the Astrosat, consider the following statements:

1. It is India’s first multi-wavelength satellite that has five unique X-ray and ultraviolet telescopes working in tandem.
2. It has recently detected extreme UV light from a galaxy called AUDFs01, 9.3 billion light-years away from Earth.

Which of the statements given above is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: C

Mains Questions:

Q.1) Analyse the key reasons behind the fall of GDP figures. What are the steps taken by the government, challenges/hurdles and solution to bring the GDP on the right trajectory?