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The first advance estimate pegs real GDP growth in FY22 at 9.2%, but the Omicron wave could upset these calculations. From all indications, the economy at the end of FY22 may not be far from where it was in FY20. As the unemployment data reveals, the economy was slowing even before the third wave; in August, joblessness was a high 8.32% and, after improving during the festive season, it spiked again in December to a four-month high of 7.9%, as per CMIE data.

Indeed, while GVA growth may have been 8.5% in Q2FY22, excluding agriculture, forestry and fishing, public administration, defence and other services, it grew at a very unimpressive 7.5%. Indeed, the headline numbers masked several weaknesses in industry and services—most worryingly, the fact that at Rs 19.48 lakh crore, the PFCE was smaller than in both Q2FY21 and Q2FY20. Construction grew at a weak 7.5% y-o-y on the back of a contraction of 7.2% in the corresponding quarter of FY21.

Joblessness appears to have increased in both urban and rural areas in December. While the labour force went up by 8.5 million, the number of jobs increased by less than four million. The advance estimates peg the growth for a key sector like construction at 10.7%—on a base of a negative 8.6% in FY21 and 1% in FY20; that is a very modest increase, but may not come through. In fact, manufacturing is forecast to grow at just 12.5% on the back of contractions of 7.2% and 2.4% in FY21 and FY20, respectively.

It is surprising, therefore, that the increase in gross fixed capital formation has been pegged at 15% even if it is coming off a contraction of 10.8% in FY21 and a growth of only 5.4% in FY20. Although there is a section of industry that is expanding or diversifying, given capacity utilisation is still below 70%, the private sector isn’t expected to invest meaningfully. CMIE data shows new project announcements in the December 2021 quarter—for the private sector—stood at Rs 1.9 lakh crore, more or less at the same level seen in the previous three quarters.

The really big worry is the services space. Trade, hotels and transport are projected to grow at only 11.9% in the current year, on the back of a contraction of a 18.2% contraction in FY21. In other words, the loss in FY21 would not be made up; the value addition would be smaller than in FY20 by about Rs 2.3 lakh crore.

This cannot be good news for employment, especially since the third wave of the pandemic will disrupt normal life and hit businesses. To be sure, there are sectors such as IT and e-commerce that continue to recruit in fairly big numbers, even if some of the hiring is on a temporary basis. However, this is unlikely to compensate for informal sector job losses in segments like transport, hospitality, tourism and retail. The upshot of this is that the estimated Rs 81 lakh crore of PFCE—only a 6.9% growth on a contraction of 9.1% in FY21—may not materialise. The government must spend more to assist MSMEs—like it has through the ECLGS; expenditure so far this fiscal has been rather modest. It must use the fiscal room of Rs 66,000 crore created by the higher nominal GDP of 17.6%; this is not the time to be too concerned about the fiscal deficit. The inequality in the economy needs to be checked, and for that, the MSMEs need support; the corporation tax could be raised, for a few years, to raise additional resources that can be used to support weaker sections of the economy. Growth needs to be far more inclusive than it is now.

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