India’s GDP in 2021-22 grew 8.7% to record Rs 147.35 lakh crore. Following a contraction of 6.6% in 2020-21, the latest GDP number indicates that the impact of the outbreak of Covid-19 and the subsequent national lockdown has been overcome. However, a more detailed look at the components of GDP suggests that overall recovery in relation to the pre-pandemic period is weak, and when it comes to private consumption the situation is not good.
In absolute terms, private consumption in 2021-22 was Rs 83.77 lakh crore, higher by 1.4% in relation to the pre-pandemic year of 2019-20. However, when seen in terms of per capita private consumption, the message is different. Per capita private consumption in 2021-22 was Rs 61,215, lower than the Rs 61,594 recorded in 2019-20. In other words, private consumption today in per capita terms is yet to catch up with the pre-pandemic period.
The Indian economy is entering a challenging phase. The GDP in the January-March quarter grew 4.1% to Rs 40.78 lakh crore. The economic performance was dragged down by the Omicron wave in the quarter. Since then, conflict between Russia and Ukraine has worsened the environment and pushed up price levels in commodities.
Given a rising trend in inflation and a still weak demand, fiscal policy will have to play the primary role in providing support to the economy. GoI and states need to recalibrate their fiscal stance as inflation-adjusted private consumption is weak but tax collections will overshoot expectations as nominal GDP grew at 19.5% in 2021-22 and this momentum will be maintained for a while.
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