The GDP at the first quarter of FY22 showed a stellar performance with a mark of 20.1%. The second quarter is at 8.4%, which is impressive for a growing economy.
The absolute real GDP of Q2FY22 is larger than Q2FY20. But the absolute real GDP of the first half of FY22 is lower than the first half of FY21. Even that growth is unequal with higher spending by the rich and lower spending by the rest.
The general picture shows that the nation is recovering from the pandemic. But RBI studies show that, there is a significant negative output gap which shows that the recovery is uneven.
Even now it is unclear about the effect of the pandemic on the economy.
This slows down the implementation of counter effect, and lack of knowledge over it may lead to the formulation of the wrong plan that would make matters worse.
The organized production sector is back with good profits. The business confidence survey shows that the business world is in high spirits. There are also signs of recovery in private investments.
The signs are the companies’ preference for deleveraging, giving them a healthy balance sheet. Then there are the continuing negative real interest rates and the PLI scheme.
In proportion to GDP, the Gross Fixed Capital Formation (GFCF) rose 32.0% at a constant price compared to 31.6% of the previous quarter. While Q2FY20 real GFCF was ₹1,126 bn, it rose ₹1,142 bn recently.
According to estimates, this trend is because of the government’s expenditure rather than the private’s. As the capacity utilization levels continue to be low. Consequently, sectors including manufacturing are not keen to increase the capacity.
Another element that keeps the economy growing is the consumption by the consumers.
While private consumption is measured by Private Final Consumption Expenditure (PFCE), the governments’ is measured by Government Final Consumption Expenditure (GFCE).
PFCE, which consists of 50% of the GDP, is yet to recover the pre-pandemic levels, even though it shows 9% growth Q2FY22. It could be induced by Navaratri and Diwali. But the GFCE has degrown. Together it is lower than FY20.
The spending of the rich is also measured by the sale of valuables. Valuables are the products that are expensive and durable goods that are neither used for consumption nor as raw materials. They are acquired only as a store of value.
These items have jumped from 183% of last year’s quarter to 603% of Q2FY22. Even from a GDP point of view, it rose from 0.5% to 3.3%. This shows that the rich are spending their savings, while the rest are not.
The consumption rates also show the income level, which is also testimony to the fact that income has not yet reached the pre-pandemic level. There is also unemployment. Even in the rural areas, there is no job safety outside MGNREGA.
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