A sober reading of Q3 numbers reveals that economic recovery is sharply uneven

The GDP numbers for the October-December 2022 quarter were subdued at 4.4 per cent. The latest growth figures put out by the NSO showed a consistent decline for the current financial year from 13.5 per cent in Q1 to 6.3 per cent in Q2 and 4.4 per cent in Q3. The bigger worry was that the anaemic numbers were generated in the quarter that is usually considered to be a strong one, driven by festive spending. Yet another concern was that the Q3 figures came on the back of a low base of 5.4 per cent growth in Q3 of FY22. Typically, a low base leads to a higher growth level, which was not the case in this quarter.

A sliced-and-diced examination of the Q3 data threw up some interesting results. There was some respite amid the gloom with regard to agricultural sector, which expanded by 3.7 per cent in Q3 against 2.4 per cent in Q2. The picture was similarly rosy when it came to mining sector (3.7 per cent in Q3 against minus 0.4 per cent in Q2) and utilities (8.2 per cent in Q3 compared to 6 per cent in Q2). However, sectors critical to employment and income generation continued to bleed with manufacturing contracting by 1.1 per cent in Q3 as against a 3.6 per cent plunge in Q2. Pace of growth of trade, hotels and transport segment was also slower at 9.7 per cent in Q3 compared to 15.6 per cent in Q2.

Private Final Consumption Expenditure (PFCE) or private consumption continued to recount a bleak story. The PFCF grew at a disappointing 2.1 per cent for the Q3, which being the quarter full of festivals, holidays and weddings usually sees robust spending. Since PFCF or the private consumption expenditure accounts for more than 55 per cent of the economy, the implications of the weak figures are profoundly depressing. As a result, businesses are under pressure to rein in costs, limit fresh hiring and postpone capacity addition until there is better visibility. And this is what has been happening for quite a long time now. Moreover, government spending, which continued to prop up the economy, is also declining amid the compulsion of reining in fiscal deficit.

Along with the Q3 numbers, the NSO also released the second advance estimate of GDP for the whole of FY23, which is pegged at 7 per cent. The estimate is overly optimistic, to say the least. The ongoing Q4 (January-March 2023) of the current financial year will have to turn in 5.1 per cent growth to be able to achieve the estimated 7 per cent growth for FY23. That feat is remarkably unachievable in the present circumstances amid depleting consumption demand, plunging government and private investments and sliding exports.

A rather correct and sober reading of the Q3 numbers reveals that the economy is yet to recover fully from the COVID-19 shock. The fact of the matter is that the economy was already in trouble even before the pandemic struck. Post-pandemic, the recovery has been sharply uneven, with the organised sector and large businesses bouncing back rapidly, while the unorganised sector and small enterprises struggling to stay afloat.

The overall growth momentum is slowing down as pent-up demand from lockdown period fades and the government’s tighter fiscal policy and the RBI’s tough monetary policy take their toll. The RBI must pick up the right signals from the dismal Q3 numbers and pause its policy rate hikes. The government, of course, has a bigger task ahead. But first of all, it should stop tom-tomming India as the fastest-growing economy in the world.

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