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Opinion: Mythili Bhusnurmath

How does one read GDP numbers for Q2 2021-22? In keeping with Miles’ Law — Where you stand depends on where you sit — the reactions from GoI and the Opposition to the data released on Tuesday were entirely predictable. Triumphalism from government and murmurs about the shine lent to the numbers by base effects from the latter. Is it possible to take a dispassionate view? As befits my tribe of ‘on the one hand-but on the other’ economists — about whom Harry Truman reportedly despaired calling (in vain) for a ‘one-handed economist’ — there is good news and bad.

The good news is that at 8.4% Q2 growth is well above most estimates including the Reserve Bank of India’s (RBI) 7.9%. Also unlike in the comparable period last fiscal when every sector save agriculture and electricity contracted this time round all did well. Two in fact have grown sequentially — financial services and public administration the latter up 17.4% from 5.8% in Q1 2021-22 and a contraction of 9.2% in Q2 2020-21.

Together with the stellar growth of 4.5% recorded by agriculture the ground seems to be laid for the much-hoped-for recovery with nominal GDP for Q2 (Rs 35.73 lakh crore) finally surpassing the pre-Covid Q2 level (Rs 35.61 lakh crore). Add to that strong core sector growth (7.5%) in October 2021 improvement in gross fixed capital formation (GFCF) a.k.a. investment strong growth in revenue receipts and better control over revenue expenditure resulting in a fiscal deficit of just 36% of the budget estimate for 2021-22 against 120% of last fiscal’s budget estimate and it would appear GoI’s cup of joy is overflowing.

Alas there is a fly or two in the ointment. Just when we think we are out of the woods there’s a new threat — Omicron. As of now we do not know whether this mutant strain will be as destructive of both economies and human lives as the earlier variant. But when the World Health Organisation (WHO) calls it ‘very high risk’ countries must sit up and pay heed.

Granted a repeat of the 2020 lockdown is highly unlikely. But restrictions on mobility seem inevitable. These are bound to have an adverse consequence on economic growth given the high share (60%) of the contact-intensive services sector in our GDP.

The other elephant in the room about which there is much less uncertainty and is largely of our own making is rising inflation. RBI’s accommodative monetary policy served us well in the early days of the pandemic. But thanks to its tardiness in withdrawing excess liquidity despite average inflation remaining above its target range last year high inflation is here to stay.

At 4.5% consumer price inflation for October 2021 seems deceptively low. But it is only a matter of time before the impact of high wholesale price inflation (12.54%) the highest in five months gets translated to higher retail prices.

In a scenario where traditionally low-inflation countries like the US and Germany are reporting inflation at a three-decadal high of close to 6% and supply bottlenecks could possibly re-emerge it is naïve to expect India will remain an outlier and be able to tame inflation never mind brave talk of inflation being ‘transient’.

Unfortunately neither GoI nor RBI seems fully cognisant of the impending danger. Contrast this with the US. ‘I’m here to talk about one of the most pressing economic concerns of the American people.

And that is getting prices down number one; number two making sure our stores are fully stocked; and number three getting a lot of people back to work while tracking and tackling these two above challenges.’ That was Joe Biden speaking in Baltimore early November.With US inflation hitting 6.2% in October ‘getting prices down’ rather than growth is now Biden’s top priority. Both growth and inflation impact citizens. But while the impact of growth is indirect and usually skewed in favour of the better-off high inflation impacts the poor disproportionately as they do not have neither staying power nor access to social safety nets.

Given the nature of the beast inflation finally will stall growth as well as that is how the remedy — high interest rates — works. With a hike in US interest rates just months if not days away India is in for troubled times. Even if we avoid the taper tantrum of 2013.

Let’s not lose sight of why GDP numbers matter. As Tom and David Chivers point out in their book How to Read Numbers: A Guide to Statistics in the News (and Knowing When to Trust Them) ‘If the people in charge aren’t careful they can lose sight of the fact that the metric isn’t what you really care about but is a proxy for an often complex multifaceted and hardto-define — but nonetheless real — underlying quality which you do care about.’

In the context of GDP the underlying real quality is human welfare. Something that GDP can never capture entirely but the political leadership in a democracy ignores only to its peril.

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

The NCAER Business Expectations Survey (BES) closely tracked firms throughout the pandemic period on a quarterly basis trying to understand the challenges that they faced how they adapted and whether they were able to leverage government benefits targeted at them.

After the second COVID-19 wave business sentiments recovered in 2021–22:Q2 as compared to those prevailing in 2021–22:Q1. The NCAER Business Confidence Index (BCI) increased by 90 per cent on a quarter-on-quarter basis and by 80 per cent on a year-on-year basis. Furthermore BCI is now higher than the pre-pandemic level in 2019–20:Q2 signalling recovery from the worst of second COVID-19 wave. 

The NCAER Business Expectations Survey (BES) closely tracked firms throughout the pandemic period on a quarterly basis trying to understand the challenges that they faced how they adapted and whether they were able to leverage government benefits targeted at them. In this article we focus on two things – (i) government pandemic measures & their relevance for firms and (ii) firms wish list from Budget 2022.

Availing benefits from policy measures

The government had announced several measures for firms including subsidised rate or special credit facilities greater repayment flexibility or extended loan tenures postponement of filing taxes and reduction in penalty on overdue Goods & Services Tax filing. In Round 118 of the NCAER BES we had asked firms to evaluate to rate the perceived benefits of key policies on a scale of 1 to 5 with 1 being least beneficial and 5 being most beneficial. Policies were found to have significant benefit when firms rated them 4 or 5.

1. Postponement of filing taxes: 52.2% of firms found this policy to be of significant benefit. This number was 54.5% for small firms i.e. firms with annual turnover ≤Rs 100 crore and 48.7% for large firms i.e. firms with annual turnover > Rs 100 crore.
2. Reduction in penalty of overdue GST filing: 50.5% of firms found this to be significantly beneficial.
3. Moratorium on loans:  43% firms perceived this policy as significantly beneficial.
4. Credit Policies: Several rounds of the NCAER BES show that credit uptake worsened between June 2020 and March 2021 with 75% of firms responding that they were not even aware of the Emergency Credit Line Guarantee Scheme (ECLGS). There has been improvement in share of firms responding that they had ‘taken credit in the last three months’ in June and September 2021 (Improving The Credit Scenario In India). Despite the improvement 70% of firms had responded that they had not ‘taken credit in the last three months’ in September 2021 and only 19% of firms were planning to take credit in the next three months.    Among the firms that took loan during the last three months 48% responded that they utilised some government scheme announced post-Covid to take credit. Awareness about schemes like ECLGS had also improved after December 2020.  
5. Factorisation: A common challenge that has been reported by firms is about pending dues from their buyers.  In September 2021 54.2% of firms had responded that they had pending dues from private sectors buyers. To address this the government amended the Factoring Regulation Act 2011 in 2020 to widen the scope of entities which can engage in factoring business. NCAER BES in September 2021 asked firms about their awareness of this policy and if they would sell their ‘invoices’ to a factoring firm at a discount in exchange for quicker funds. Our survey suggests that nearly two-third firms were aware of the Factoring Regulation Act with corresponding figures for small and large firms being 57% and 73% respectively. Despite high awareness of the new laws most firms were reluctant to avail benefits from this funding source. Specifically 57% firms were not willing to sell their ‘invoices’ to a factoring firm at a discount. The main reason given by firms was they had no such margin to sell their business at a discount. 

Wish list from the government for Budget 2022

As the pandemic abates and economic conditions improves policy set may require changes to support firms.  Among the various policy options 83% firms responded that they wanted the GST process simplified. Thus easing regulatory burden or business rules was the top priority of firms. This was followed by some measure of financial support. Around 63.5% of firms wanted wage support and 54% firms wanted the government to provide financial grants to sail through the crisis.  Interestingly only 48% firms require tax holidays while 32% firms responded that they wanted favourable custom duties/import tariffs. 

In sum the relevance of the policies announced by the Government in the immediate aftermath of the pandemic was varied.  Only two policies namely ‘postponement of filing taxes’ and ‘reduction/waiver of late payment penalties’ were perceived to be significantly beneficial by slightly more than 50% of firms.     Further easy credit availability either through credit guarantee scheme or market innovation of factoring did not appear to be of significant interest to firms. Thus cost reducing measures appeared to have benefited the firms more than capital infusion policies. 

Juxtaposing the perception of benefits against wish list in the future we find that capital infusion or monetary support were not the most preferred options. Instead easing regulatory burden by simplifying GST procedures may gain better yields. This not only improves ease of doing business but also improves further tax collections.    

Bornali Bhandari is Senior Fellow KS Urs Associate Fellow and Ajaya K Sahu is Senior Research Analyst at NCAER.  Samarth Gupta is a former Associate Fellow at NCAER.  Views are personal.

The demographic dividend is smaller but will last longer due to regional variation in the onset of fertility decline. As southern states struggle with the growing burden of supporting the elderly northern states will supply the workforce needed for growth.

Success brings its challenges. The first challenge is accepting the win the second is to learn to live with it. Recent results from National Family Health Survey-5 (NFHS-5) suggest that we are entering an era where we will have to tackle these challenges. NFHS-5 places the total fertility rate (TFR) at 2.0. With two parents having two children we have reached a replacement level of fertility. Due to many young people the population will continue to grow but the replacement level fertility is a significant milestone in India’s demographic history.