On Monday, the National Statistical office released the Economic Data for the current fiscal year, recording its worst contraction in decades of 23.9 per cent over the months of April, May, and June.
The COVID-19 outbreak, and successive lockdowns implemented by the central and state governments have slowed down the business activities drastically triggering the greatest decrease in the GDP of the decade, with similar figures last recorded in the fiscal year 1996. The GDP of India in the 4th quarter of the last fiscal year stood at 3.1 per cent, projecting an over-all growth of 5.2 per cent.
A contraction in India’s GDP was probabilistic and expected by economists and researchers, with an expectation of the shrinkage not exceeding 20 per cent. The latest figures have stirred expectations of a further decrease in the GDP, given the distortion of the mass business activity which occurred during the first quarter.
“The Indian economy is in a deeply vicious cycle, where demand is contracting so heavily, while the capacity to neutralise this contraction has also contracted equally because of the tax revenue contraction. Therefore, I don’t see GDP returning to positive territory for six quarters, until the second quarter of next year,” said D. K. Srivastava, Chief Economist at Ernst and Young, and a member of the Advisory Council to the 15th Finance Commission. Such contractions have been recorded nearly four times previously, and comparatively this shrinkage is expected to be the worst since Independence.
Agriculture being the only sector projecting a growth of 3.4 per cent as compared to the last fiscal. All the other essential sectors saw contractions, with the harshest fall in construction of 50 per cent and 47 per cent in trade, hotels, transport, communication and services related to broadcasting. Manufacturing shrank more that 39 per cent and there was more than 10 percent fall in public administration defence and other services.
On the Expenditure side, private consumption fell by 26.7 per cent, and
investments, as indicated by fixed capital formation shrunk by 47 percent and exports contracted by nearly 20 percent. Though, the Government final consumption grew by 16.4 per cent.
“The investment outlook is very bleak and may fall further. Consumption indicators are improving sequentially, but continue not on a year on year basis,” said D.K. Pant, chief economist at India Ratings, an arm of the Fitch group, projecting that all 4 quarters for the fiscal will remain in negative territory. “The government has so far focussed on supply side only, but unless they are willing to spend to spur demand side, next year will also be dire.” Renowned economist, Pronab Sen agrees the need of increase of government expenditure. Despite the increase in GDP in the last fiscal, he expects a contraction of 10 per cent to 12 per cent this year.
The centre’s Chief Economic Advisor Krishna Murthy Subramaniam portrays the core data as an indicator to a “V-shaped recovery”, keeping in mind the recovery from a 38% contraction in April. Further elaborating on the railway freight traffic being at 95 per cent. Power consumption having a minor decrease and the inner state trade being at 99.8 percent, remaining unchanged despite the respective central and state lockdowns are factors which carry the optimism of better performance in the subsequent quarters. The GDP contraction is being aligned with the Global Recession, an outcome of COVID-19.
Written by Devesh Jasnani
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