The quarterly estimates released for the second quarter (July to September 2022) by the National Accounts Division estimate a GDP growth of 6.3 percent which was pegged at 13.5 percent in the first quarter of 2022-23. Understandably, the previous figure was relatively high because of the low base effect, and growth rates show moderate trends as situations normalise. On the sectoral growth trends what seems positive is the recovery of growth in contact-intensive services particularly the hospitality industry which suffered a huge contraction during the pandemic. Trade, hotels, transport, and communication sectors continue to grow at 14.7 percent in gross value added in basic price which is lower than the 25.7 percent growth rate recorded in the last quarter. Agriculture and allied sectors have recorded 4.6 percent growth but what seems to be worrying is the contraction experienced in the mining and manufacturing sector in the quarter ending September 2022.
This is not something which attracted attention in recent times but India’s manufacturing sector did not show an encouraging performance in the past four decades. The average growth of manufacturing in the current decade is almost the same as the average growth recorded in the pre-liberalisation 1980s. In the past two decades, the average growth rate of manufacturing was even lower. For developing countries, the importance of the manufacturing sector rests on the fact that manufacturing helps move people from low-value-added agricultural activities to high-value-added jobs with very little training. An agricultural worker can easily be transformed into a factory worker in the textile or garment industry but cannot be employed in software firms or financial sector activities that require some education and training. The share of manufacturing in employment also remained almost stagnant at 10-12 percent of the total workforce. The issue of ‘jobless’ or ‘job loss’ growth relates to the nature of demand driven by the structural pattern of growth. In the context of a very skewed distribution of income, as the case in India, labour absorption in the manufacturing sector is not going to take off easily as the demand of the rich is more inclined to financial assets and favours imported goods.
More importantly, the structure of consumption demand is highly skewed in India in favor of the rich. According to the National Sample Survey Organisation, the consumption expenditure of the bottom 90 percent is just half of what the top 5 percent spends on durable consumer goods. There is a huge gap in consumption expenditure between the top two classes and the third one if we divide the consumption expenditure distribution into twelve consumption classes categorised by the National Sample Survey Organisation. This is also linked to the growth of manufacturing in India. Manufacturing growth largely depends on the growth of demand for plants and machinery on the one hand and the demand for durable consumer goods such as vehicles, refrigerators, televisions, air conditioners, and other types of white goods. Even though the demand for durable consumer goods has increased in the past two decades, the share of durable consumer goods in the average Indian consumption basket for the past three decades has been as low as 3.3 percent. Therefore, an increase in demand both for plants and machinery and for durable consumer goods has not been adequate in triggering high manufacturing growth in India.