India's GDP contracts 23.9%

India’s GDP collapses 23.9% in Q1FY21, worst among major economies

The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation has released the estimates of Gross Domestic Product (GDP) for the first quarter (April-June) Q1 of 2020-21, both at Constant (2011-12) and Current Prices, along with the corresponding quarterly estimates of expenditure components of the GDP.

GDP at Constant (2011-12) Prices in Q1 of 2020-21 is estimated at Rs 26.90 lakh crore, as against Rs 35.35 lakh crore in Q1 of 2019-20, showing a contraction of 23.9 percent as compared to 5.2 percent growth in Q1 2019-20.

Asia’s third-largest economy was already faltering when the pandemic struck. In April-June, it suffered a contraction for the first time since India began maintaining quarterly records in 1996.

GDP in the April-June quarter of 2020-21 slumped 23.9% compared with growth of 3.1% in the previous (January-March) quarter.

With a view to containing the spread of the Covid-19 pandemic, restrictions were imposed on the economic activities not deemed essential, as also on the movement of people from 25 March 2020. Though the restrictions have been gradually lifted, there has been an impact on the economic activities as well as on the data collection mechanisms.

The timelines for filing statutory returns were also extended by most regulatory bodies. In these circumstances, the usual data sources were substituted by alternatives like GST, interactions with professional bodies, etc. and which were clearly limited.

National income accounts data released on August 31 showed that India’s “real” or inflation-adjusted gross domestic product (GDP) contracted 22.6 percent, the sharpest drop in 41 years, compared to a growth of 8.1 percent in the same quarter last year.

Among major economies, India’s contraction was the sharpest. China, after posting a contraction in the January-March quarter has recovered with 3.2% growth in the April-June quarter. Globally, India is close to the US’s contraction of 32.9% in the second quarter.

The Manufacturing Sector, which has been in the grip of a sharp slowdown, fell 39.3% in the June quarter while construction slumped 50.3% during the three-month period.

The Construction Sector contracted 50.3 percent compared to a growth of 5.2 percent last year as roads and infrastructure projects grinded to a halt for the most part of April-June 2020-21.

The Real Estate Sector, which had to stop overnight because areas with large gatherings had to be emptied out, also was severely affected. The sector, along with financial and professional services, shrank 5.3 percent in April-June 2020, emblematic of the lockdown’s impact on realty projects, walloped by a severe cash crunch, and the plummeting demand for houses.

The Agriculture Sector was the only bright spot. The sector, which has benefited from a robust monsoon, rose an annual 3.4% in the June quarter compared with a growth of 3% in the June quarter of 2019-20.

Trade, Hotels, Transport, and Communications Sector posted the second-highest contraction, declining 47% in the June quarter.

The Services Sector, which accounts for nearly 60% of the economy, slumped 20.6% in the June quarter, compared to a 4.4% growth in the previous. Services such as hotels, restaurants, hospitality, and airlines, have borne the maximum brunt of the.

Private Consumption, a key driver of the economy witnessed a sharp decline of 24.5% in the first quarter from an 8.5% increase in the year-ago period.

Government Consumption saw a 20.2% increase in the June quarter compared with the 9.5% growth in the same quarter of the previous year. This highlights the role of government spending in supporting the economy.

“Economists define a recession as two consecutive quarters of negative growth. If GDP growth falls again in the current quarter (July-September), India would technically be in a recession, an economic state characterized by at least two successive quarters of contraction, underscoring the pandemic’s bludgeoning impact on a country that until not-too-long-ago was the world’s fastest-growing major economy.”

India was in a recession last in 1979 when the real GDP fell 5.2 percent.

The next release of quarterly GDP estimates for the quarter July-September, 2020 (Q2 of 2020- 21) will be on 27.11.2020.

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