As India gradually becomes the global hotspot for COVID-19, the gross domestic product for the first quarter ended June of FY 2020-21, released on Monday, 31 August, dropped 23.9%, revealing the extent of damage the pandemic has caused to the country’s economy.
With economic activities almost brought to a standstill due to the nationwide lockdown to curb COVID-19, most sectors like manufacturing and construction received a heavy dent.
Agriculture, on the other hand, offered some respite, having advanced 3.4 percent in the first quarter.
Here is the sector-wise breakdown:
Asia’s third largest economy saw the steepest fall in GDP first time in four decades. If the negative growth rate continues for a second quarter in July-September, India will reel from recession.
On a sequential basis, the quarterly growth rate has progressively declined from 5.2 per cent in Q1 of 2019-20 to 4.4 percent in Q2, 4.1 percent in Q3 and 3.1 percent in the last quarter of 2019-20.
The Gross Value Added (GVA) stood at -22.8 percent as against the estimates of -19.2 percent.
‘GDP Decline Due to Lockdown’: Chief Economic Advisor
Chief Economic Advisor KV Subramanian told reporters, “April-June quarter economic performance is primarily due to exogenous shock felt globally due to COVID-19 which resulted in global lockdown in April to June quarter. Even India was in lockdown in the first quarter.”
Highlighting on the indicators like the core sector growth which has experienced slower rate of decline since April, CEA said India is witnessing a V-shaped recovery, reported NDTV.
"Core sector growth which had declined by 38 percent in April has progressively reduced to 22 per ent in May, 13 percent in June and 9.6 percent in July 2020. Core sector output is clearly showing a V- shaped recovery," Subramanian said.
During the GST council briefing on 27 August, the finance minister had referred to the coronavirus outbreak as an ‘act of God’ which may lead to a contraction of the economy in the current fiscal.
Expenditure Trends
India's private final consumption expenditure, the indicator for household spending, fell 26.7%. Investments indicated by Gross Fixed Capital formation dropped 47.1%, while Government Final Consumption Expenditure rose 16.4%.
Experts React
Speaking to BloombergQuint, Pronab Sen, former chief statistician of India, said the first round of revisions would take place when data from the Ministry of Company Affairs data is included. The quarterly projections are mainly based on corporate data of listed corporates, and not the smallest companies. He added that the steep contraction in the first quarter means that the full year contraction could be worse than the -5 percent estimated by a number of economists.
Commenting on the numbers, Dr Sangita Reddy, President, FICCI said, “The sharp plunge in quarter-1 GDP growthjavascript:void(0) numbers was anticipated. However, the magnitude of the contraction has indeed come as a surprise. This only highlights the urgent need to take immediate measures to bolster demand in the economy and we hope government and RBI will plan for the next set of fiscal and monetary measures and make these announcements soon.”
She also added that the government should consider a temporary reduction in GST rates, especially in the consumer durables segment. “Greater impetus to housing, infrastructure and auto sectors and support to state governments for purchase of buses for city transportation must also be considered,” Dr Reddy said.
Sakshi Gupta, senior economist at HDFC Bank Gurugram told Reuters, “Hopes of an economic recovery in the second half of the year have been pinned on a rural sector revival. However, with the virus spreading to the hinterland, the rural support might be lower than expected.”
Congress Slams Modi Govt
In a virtual press conference on Monday, former Union finance minister and senior Congress leader P Chidambaram caled the GDP numbers an “economic tragedy”, and said the “country was paying a heavy price” for the “nonchalant and uncaring” attitude of the Modi government.
“GDP in the first quarter has declined by a whopping 23.9 percent. That means, about one quarter of the gross domestic output as on 30-6-2019 has been wiped out in the last 12 months. Another way of looking at it is, since the end of 2019-20, the gross domestic output has fallen by about 20 percent,” Chidambaram said.
“The only sector that has grown is Agriculture, Forestry and Fishing at 3.4 percent. The finance minister who blamed an ‘Act of God’ for the economic decline should be grateful to the farmers and the gods who blessed the farmers,” he added.
“But we know that the Modi government has no shame and will not acknowledge its mistakes. All this had been anticipated,” Chidambaram also said.
Congress leader Rahul Gandhi slammed the government for ignoring “warning” and wrote on Twitter, “GDP reduces by 24%. The worst in Independent India's history. Unfortunately, the Govt ignored the warnings. (sic)”
Rajasthan CM Ashok Gehlot said that the country’s economy “had been sinking since long” and accused the NDA government of not taking any steps to improve the situation.
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