Charting the recovery

AS THE ECONOMIC IMPACT OF COVID-19 SLOWLY WEARS OFF, the first advance estimates of gross domestic product for 2020-21 point towards areas that would lead in the economic recovery.

The strongest uptick is seen in the financial services, real estate, and professional services segment of the economy. The gross value added (GVA) in this segment had contracted by 6.8 per cent in April-september 2020-21 (H1 FY21), but it is now expected to grow at 7.1 per cent in October-march FY21 (H2), shows chart 1. This means that banking and finance companies and housing developers may be the first riders of the recovery wave. This segment occupies more than a fifth of the GVA in the economy.

Construction may grow at

4.4 per cent in H2 — significantly better compared to other major sectors. If this really happens, it could help reverse the job losses in the informal sector to some extent.

But trade, hotels, transport and communication are set for a washout year, with 31.5 per cent fall in GVA in H1, followed by 12 per cent decline in H2. Chart 2 shows that nominal GVA in that segment in FY21 will be less than the FY18 levels. Manufacturing also needs a boost since the GVA has lost close to 10 per cent in value.

The next three charts show how the recovery in H2 is heavily dependent upon government expenditure. GFCE, or government final consumption expenditure, contracted 3.9 per cent in H1, and is now expected to grow by 17 per cent in H2 (chart 5), a growth rate that is very rare. The edifice of recovery rests on this, as private consumer spending (chart 3) and investments (chart 4) will stagnate at most even in H2.

Finally, Covid-19 has pulled the income of an average Indian back to 2018-19 levels in 2020-21. In fact, income growth has been slowing over the last few years, as chart 6 shows. The sooner the 5 per cent contraction in nominal income is reversed, the better will an average Indian feel about her well-being in this time of crisis.