Growth in GDP, GVA, and their components ensures no permanent losses in demand and output
A permanent output loss refers to a downward level shift in the observed variable due to the loss in output capacity. This box item visualizes the pre-pandemic and post-pandemic trends in India’s aggregate macroeconomic variables. These include GDP, GVA, private consumption, and the subcomponents of GVA.
In the analysis, six key macroeconomic variables at constant (2011-12) prices, i.e., GDP, GVA, PFCE, GFCF, industry GVA, and services GVA of quarterly frequency, have been deseasonalized using the X-12 ARIMA technique. This technique decomposes variables into their trend, seasonal, cyclical, and idiosyncratic components. The deseasonalized variables have been visualized to understand their current position relative to pre-pandemic trend projections. A trend line based on deseasonalized data between June 2011 and March 2020 has been plotted and extended until March 2024. It reflects the approximate forecast of the variable in each quarter from June 2020 to March 2024. This forecast assumes that the pandemic-induced contraction of economic activity did not occur.
The visualisation reveals that GDP, GVA, private consumption, GFCF, and industrial GVA have recovered quickly. We observe that the compounded quarterly growth rate (CQGR) of these variables is higher in the period from Q3 FY21 to Q4 FY24 than in the pre-pandemic period from Q1 FY12 to Q4 FY20. This has enabled a broad catch-up to the levels projected by pre-pandemic trends. Therefore, it has averted any permanent losses in demand or output. The reasons for this are manifold.
The pandemic-induced contraction presented an opportunity for the deployment of a counter-cyclical fiscal policy. This policy focused on capital expenditure, thereby positioning government-driven capital formation as a driver of growth. It also facilitated the implementation of multiple process reforms. Moreover, it enabled the deployment of public digital infrastructure that boosted the ease of doing business. The pandemic also accelerated the adoption of digital technologies amongst the population and enhanced financial inclusion. With the GST and the Insolvency and Bankruptcy Code (IBC) acting as tailwinds, the economy’s growth took off.
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