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Collapse of consumption, return of labour to agri testimony to policy failure: West Bengal finance minister Amit Mitra

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“The Gross Fixed Capital Formation (GFCF) in Quarter-1 of 2019-2020 (before pandemic) was Rs. 12.3 lakh crore. This fell to Rs 10.2 lakh crore in Q1 of 2021-22 – a fall of investment by Rs 2.1 lakh crore, despite your numerous ‘packages’ and corporate tax cuts,” he wrote.

Citing the ‘failure’ of the Centre in addressing the rise in unemployment, ‘reverse migration of workers to agriculture’, ‘persistent (high) inflation’ and ‘collapse’ of private consumption, West Bengal finance minister Amit Mitra on Friday wrote to Union finance minister Nirmala Sitharaman, reiterating the need for ensure cash in the hands of people, to stimulate demand.

In Q1 of 2021-22, private consumption, which constitutes 56% of the GDP, was 12% below the pre-pandemic level of 2019-2020. “It is pathetic that private consumption in 2021-22 so far is almost identical to private consumption in 2017-18,” he wrote. Consumer sentiment in August has significantly fallen as per the RBI and CMIE, he noted.

“The nation is shocked to find that in the last month (August 2021), unemployment rate has again shot up to 8.32%, which implies that 3.6 crore people are jobless today,” Mitra wrote. Citing an Azim Premji University study, he said nearly half of the formal salaried workers have moved into informal work between late 2019 and late 2020.

Quoting the Centre for Monitoring Indian Economy (CMIE), Mitra said that 60% of employment in manufacturing industries is in the unorganised sector. “ It is this labour force that is compelled to move to agriculture —a dangerous trend that will take years to reverse,” he said.

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Persistent inflationary trend has also eaten into the meager consumption expenditure of the common people and has reduced their real income, he noted.

“The Gross Fixed Capital Formation (GFCF) in Quarter-1 of 2019-2020 (before pandemic) was Rs. 12.3 lakh crore. This fell to Rs 10.2 lakh crore in Q1 of 2021-22 – a fall of investment by Rs 2.1 lakh crore, despite your numerous ‘packages’ and corporate tax cuts,” he wrote.

This fall in investment clearly demonstrates that the Centre’s supply side policy to boost manufacturing has simply failed, he said.

It is a misplaced euphoria among the Central government spokespersons on the GDP/GVA growth in Q1 of this financial year, he said. “I would like to point out that the growth of GVA in the Quarter-1 of this year represents a shortfall to the tune of 7.79% compared to the Quarter 1 of 2019-2020.”

India’s gross domestic product (GDP) grew 20.1% in the June quarter from a year before, giving the illusion of a sharp economic recovery, but it was largely driven by a deeply-contracted (-24.4%) base. In absolute term, real GDP still trailed the pre-pandemic (June quarter in FY20) level by 9.2%, as the resurgence of Covid-19 infections hobbled the economy’s gradual return to normalcy, of which there was some evidence in the March quarter.

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