Investment recovery unlikely without consumption revival: Devendra Pant, India Ratings


It is consumption revival which is very important because until and unless we have consumption revival, it is unlikely that we have a broadbased investment recovery in the economy, said Devendra Pant, Chief Economist, India Ratings & Research on ET Now’s India Development Debate. Edited excerpts:

How do you see the economy getting hit and where do you see the impact of the second wave? Do you think there is enough to give relief to the economy?

Well, it all depends on how you want to look at it. If one looks at it the way we were last year, one would say we are doing great. But some are saying that 2022 is mainly because of base effect. If I look at the most talked about indicators across the globe as of today, they are the global mobility index and the workplace mobility index. If you look at the first quarter, till say April and almost all of May, we are ballpark almost similar to where we were in May 2020, roughly between 50% to 65% down from the base. Major difference is if you look at April number, April last year was almost 100%; almost no workplace mobility or very minimal. Whereas in April this year we are relatively better.

The growth number looks to be very difficult to predict as of now because more than any shock which economies can model with some extent of err, what we are struggling with right now and did last year is uncertainty. That uncertainty is coming from health. Now those health issues are beyond any economist’s control. The forecast is that by end of June these numbers will come to 15,000 per day, most of the epidemiologists were talking about the way it has gone up, the same way it will come down and exactly that has happened. We are closer to nearly half in 15-20 odd days.

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Problem here is even if there is COVID or no COVID, pandemic or no pandemic, lockdown or no lockdown, if I go back and look at it, FY14 was the last year when we had a nominal GDP growth of 13%. FY15 to FY18 our nominal GDP growth was in and around 11% mark, FY20 it came down to 7.5%, FY21 minus 6.5% or so. Why I am stressing for nominal GDP growth is because if you look at two factors of production, one is supplying investment and another is labour. Your nominal GDP growth or nominal GDP is nothing but the sum total of return to labour and return to capital. Now, if you look at this period, your labour wages growth has been slower than your return to capital and that wage growth has had a big impact on the consumption which we are struggling to revive.

Do we need to figure out a strategy? Where we can boost consumption appetite right away and is now the time to do it?
What happened, whether we look at last year or couple of years back, the moment that consumption started collapsing, investment was collapsing. But it was consumption which was holding fort and we were able to grow at 5-6%. But the moment consumption – which is roughly around after 56% or 57% of the GDP – started collapsing and we had seen the consumption growth barely growing in the first half – it is contracting – we are in a situation that we are again back to the old term point by Raj Krishna called Hindu rate of growth. We are looking at 4% odd or so.

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It is the consumption revival which is very important because until and unless we have consumption revival, it is unlikely to have a broadbased investment recovery in the economy. There are certain sectors which continue to attract more investment, no doubt about it, like infra especially. If you say that the renewables, roads and all those ports, airports, you will continue to have that. But if you are looking at the core infra, FMCG or other consumer products which are already operating at 70 or 75% of the capacity utilisation level, it is unlikely that there we will see the capacity addition.

Now what will happen is unless we revive this consumption, whether we do the income transfer or whichever way we have been able to do it – direct benefit transfer of subsidy, MSP to the farmers this year directly transferring that money so it is available – what is required now is a strategy by which this money is directly given. What is more important than giving this stimulus is when to withdraw it. Whether we withdraw it at the right time or we let it remain in the system and have the problem which we face in 2010 because of overheating of the economy. So, the government should provide that stimulus, provide support and withdraw it.



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