The growth rate of the GDP is usually considered the primary indicator of the health of a country’s economy, along with its forex reserves, fiscal deficit/surplus and current account deficit/surplus, tax collections and debt to GDP. Deficit is not always a negative factor, if it is reasonable and within the limits defined by international and domestic standards and practices. However, in extraordinary or abnormal situations which are beyond human control, like the Covid-19 pandemic, facts and figures should be considered practically and represented to portray a true and fair picture instead of creating a fear of uncertainties.
It is imperative to assess the size of economy in correlation to the size of tax collections and their growth from one period to another in order to come at a reasonable conclusion under normal conditions. At present, we are going through the ‘Unlock’ phase, and in such a situation, the growth in GST collections vis-à-vis the GDP is pivotal for assessing the performance of the economy. An increase or decrease in GST collections can be correlated to increases or decreases in the rate of consumer consumption, manufacturing input consumption for production output, exports and imports, investments in manufacturing and service sectors, employment, etc. Though all these factors may not register impacts according to changes in GST, the direction of its overall performance compared to these key considerations swings in a similar direction.
Currently, we need to evaluate data with care keeping in mind the factor of uncertainty and its possible influence on the future, instead of using any negative results to target the government. Many are trying their best to attack the Narendra Modi government, which has brought out the Aatmanirbhar Bharat package to handle the uncertainties during the pandemic and to ensure the smooth functioning of day-to-day economic operations of individuals and industries.
Many had raised their voices about the economy when the results of the first quarter, i.e. April to June of FY 2021-22, had registered a GDP growth rate lower by 23.9% with lower GST collections, as compared with the same period in the previous year. The difference of Rs 1,28,873 crore between the GST collections for the first quarter of the current financial year (2020-21) to the previous (2019-20) meant a growth of -41.03%.
But this decrease had come with the pandemic and the nationwide lockdown. The Modi government then announced the Aatmanirbhar Bharat package in order to boost consumption by pumping adequate liquidity into the system in different categories as per the requirements, in which Rs 3 lakh crore were allocated for MSME, directly and through NBFCs, and equity participation for around Rs 75 thousand crore, for safeguarding them so they could operate smoothly and improve its share in the GDP from the existing 30% share. Apart from this, the agriculture sector had been given utmost priority and provided with credit facilities even during the first phase of the lockdown. The union government allocated Rs 75,000 crore to procure agricultural output at MSP during this period, in addition to providing Rs 1 lakh crore towards storage infrastructure for agricultural output. Direct cash transfer of Rs 500 per month for a period of six months to 80 crore people living below the poverty line was also provided to assist their consumption needs along with food grains. Meanwhile, the PM SVANidhi scheme provided credit facility to street vendors up to Rs 10,000 with a 7% interest subsidy.
All these assistance measures given by the Union government had intended to improve month-by-month economic activities in the country during the period of the pandemic. But Congress leader Rahul Gandhi tried to politicise the (-)23.9% contraction in GDP growth as a permanent decline in the country’s economy due to the inefficiency and incompetence of the Modi government. A few Left-oriented intellectuals also joined in that chorus. However, similar conditions were seen across the globe. Advanced and developed nations were no exceptions too. On the other hand, PM Narendra Modi gave priority to providing assistance to the poor and during the lockdown and reviving commercial activities in the phased Unlock period.
Keeping in view the intensity of the Covid-19 pandemic, a few rating agencies, institutions and experts had projected the contraction in GDP around (-)10.50% to (-)12.50% in India for the current financial year, which counts tax collections, investments and employment opportunities. As against those projections, a significant surge in economic activities has been noticed in the second quarter of the current financial year, when compared to the first quarter, due to the Aatmanirbhar Bharat package. The contraction in GDP growth minimised to (-)7.5%, although it was expected to be (-)9.5% in the second quarter. It must be noted that the pandemic and lockdown had been in progress during the second quarter also. But the Narendra Modi government and the RBI have reposed the public’s confidence in a slow but steady recovery.
A significant recovery in GST collections was also registered. When compared with the first quarter’s results, there was a shortage in collections, but the Manufacturing Index or Purchasing Managers’ Index (PMI) improved during the second quarter. These have been key indicators of the performance of the economy in the present and to predict for the remaining period of the current FY.
The growth in GST collections, when compared for the months of July, August, September, October and November, was -14%, -8% , 5%, 10% and 1%, respectively. This shows the trajectory of the recovery of our economy in a “V” shape. Apart from this, PMI, which is one of the key indicators for evaluating manufacturing activity, is expected to be at 50 points. Prior to the lockdown, it was between 52 and 55 points between January and March during the current calendar year. But, after the lockdown, it declined to 27.4 in April, 30.8 in May, 47.2 in June, and 46 in July. Since then, it has improved to reach the normal as in August, it stood at 52, in September, at 56.8, in October, it was 58.9, and in November, it was 56.3. Hence, there is a clear positive uptrend in GST collections as well as PMI points from September 2020.
When manufacturing activity grows, unemployment is also minimised. Migrant labourers, who are key players in the economy, had faced serious problems due to the lockdown, which had been used for political means by the Opposition. But PM Modi gave utmost priority to safeguard their lives from the pandemic as well as allocated specific funds and resources to transport them to their homes with food and shelter, with the coordination of the state governments. Rs 50,000 crore was also allocated for the MGNREGA in addition to the budgetary allocations.
India has now registered the highest total forex reserves, at more than $575 billion and achieved the highest inflows at $13.5 billion in Foreign Portfolio Investments (PFI) among emerging economies. Foreign Direct Investments (FDI) inflows also surged at 16% from April to September 2020 and achieved $39.90 billion. Although there was a contraction of 60% in the first quarter, it improved in the second. This recovery has also been possible due to the determination and timely decisions of the Modi government.
A few are spreading propaganda against the government to create panic among the public, but even they know that the economy will recover positively after the government’s timely reaction. However, we should evaluate, analyse and report data in its true sense rather than spitting venom at anyone. Instead of settling political scores, it is more important to behave as responsible citizens. We should now look at why the RBI and CRISIL revised the projected GDP contraction from (-)9.5% to (-)7.5%. We should focus on the measures taken by the government and how it has achieved such positive results. Only then will we know that there is no doubt that our country is heading towards a $5 trillion economy in the next five years and a self-reliant Bharat under the leadership of PM Modi.
The writer holds a degree in commerce and works as an FCA.