Our Economic Recovery From The Pandemic Has Been Fairly Steady

The Indian economy has got off to a good start in the current financial year, expanding at 7.8% in the three months that ended in June. This was broadly in line with most forecasts by private sector economists.

- NIRANJAN RAJADHYAKSHA

However, it is likely that the growth rate will ease in the coming quarters, partly because of the lingering statistical effects of the fact that the first two waves of the covid pandemic were in the April-June quarter of 2020 and 2021. The result is that economic growth this financial year could be a bit lower than what it was in the 12 months ended March 2023.

Economic activity was dominated by domestic demand, given the insipid performance of merchandise exports in recent quarters because of the slowdown in global trade. Spending on consumer goods as well as spending on new machines, infrastructure and homes has grown in strength. The latest data on quarterly gross domestic product (GDP) poses a few analytical questions that matter if one is trying to get a sense of the economic momentum for the coming quarters. This column will also later touch on a more structural question on the possible lingering effects of the economic shock from the pandemic, an issue that matters when thinking about economic performance over the medium term.

First, consumer demand seems to have held up despite higher inflation. The two lockdowns imposed in response to the pandemic had led to households accumulating a stock of excess savings—or more specifically those households that had protected incomes. This stock of excess savings acted as a buffer that has been gradually spent down once the situation normalized.