The estimates of Gross Domestic Product for the April-June quarter released by the Government of India on August 31 paint a dismal picture of the Indian economy. Since the GDP in real terms (at 2011-12 prices) shows an increase of 13.5 percent over the first quarter of GDP a year ago, and since 13.5 percent appears an impressive figure, official spokespersons have been putting a cheerful gloss over it. But a closer look reveals an economy getting further bogged down in a state of stagnation. The economy, it may be recalled, had contracted sharply in 2020-21 because of the pandemic and the associated lockdown that was particularly draconian in India, and the recovery in 2021-22 had been incomplete from the trough reached a year ago. The 2022-23 first quarter figures, therefore, had assumed particular significance as an index of the economy’s underlying resilience, especially since the impact of Covid-19, though not altogether absent, had lessened to such an extent that 2022-23 could be taken as a ‘normal’ post-pandemic year. And the comparison here should be not with 2021-22 or 2020-21, both of which were affected by the pandemic, but with 2019-20 which was the last ‘normal’ pre-pandemic year.
It must also be remembered that 2019-20 itself was not a great year for the Indian economy. The first quarter GDP in 2019-20 had increased by only 5 percent over the previous year’s first quarter, compared to 8 percent in the comparable period of the previous year, causing much disquiet among official economists. The stagnation that was setting in during 2019-20 has thus persisted and has even got intensified now. The pandemic was an extraneous imposition upon this picture of stagnation; it muddied the picture and gave rise to the false impression that all the economic travails were because of the pandemic, that there was nothing fundamentally wrong with the underlying economy. But once this extraneous imposition is removed, we are back with the underlying stagnation, belying all the breezy official optimism. This stagnation is a matter of grave concern because even when growth brings misery to the working people, as it did in India during the heyday of the neo-liberal period, stagnation brings even greater misery.
Since between 2019-20 and 2022-23, there has hardly been any increase in GDP, the production capacity that existed in 2019-20 is quite adequate to produce what is being currently produced. The investment that has occurred during this period of GDP stagnation would have increased the level of unutilised capacity in the economy. Because of this growth in unutilised capacity, the investment must decline in the days to come, contributing further to a lowering of aggregate demand and hence output. The tendency towards stagnation was already there even before the pandemic; what we then had in addition was an upsurge in inflation, globally and India as well; and now we have a widening of the trade and current account deficit on top of all this. The economy in short is getting engulfed in a crisis that is becoming ever more comprehensive, and there is no solution to it within the parameters of neo-liberalism.
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