The Indian economy contracted by a record 23.9% in the April-June quarter, as the country went into the lockdown to curb the spread of the coronavirus.
India’s real GDP fell to 26.9 lakh crore in constant terms, 23.9% lower than a year ago, showed data released by the Ministry of Statistics and Programme Implementation on Monday. Nominal GDP fell to Rs 38.08 lakh crore, 22.6% lower than the same period last year.
In gross value added terms, the economy contracted 22.8%.
A Bloomberg poll of 31 economists had forecast India’s GDP to contract 18% in the April-June quarter.
The Covid-19 crisis has brought on India’s fourth recession since independence and the first since liberalisation. The economy last contracted in FY80. This is the first contraction since India began releasing GDP growth data on a quarterly basis in 1997-98.
The imposed restrictions impacted economic activity as well as data collection mechanisms, said the official data release. 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. which were clearly limited,” it added.
Sectoral Break-Up
A deeper dive into the GDP data shows that construction took the steepest hit along with manufacturing and the trade, hotels and transport segment.
- Agriculture sector grew at 3.4%.
- Mining sector contracted 23.8%.
- Manufacturing contracted 39.3%.
- Construction contracted 50.3%.
- Trade, hotel, transport, communication contracted 47%.
- Financial services sector contracted by 5.3%.
- Public administration, defense and other services contracted by 10.3%.
GDP contraction of close to 24% year-on-year during Q1 FY21 was sharper than expected. Double digit contraction in GDP remains likely also during the current quarter with the headwinds of fresh lockdowns weighing on economic recovery. However, rural activities seem to be relatively more resilient, and might benefit from government’s rural-focused employment schemes in the coming months.Siddhartha Sanyal, Chief Economist, Bandhan Bank
Expenditure Trends
- Private consumption, reflected in private final consumption expenditure, fell 26.7%.
- Investments, as reflected by gross fixed capital formation, contracted 47.1%.
- Government final consumption expenditure grew 16.4%.
Aditi Nayar, principal economist at ICRA Ltd., said the 26.7% drop in private final consumption expenditure, the mainstay of the economy, reflects the economic uncertainty and income as well as job losses. Consumption trends are likely to be altered during the pandemic, with non-discretionary and in-home consumption being prioritised at the expense of discretionary goods and services, she said.
Nayar added that without the support of government expenditure, the GDP contraction would have been worse.
Government final consumption expenditure recorded a five-quarter high expansion of 16.4% in Q1 FY21, preventing an even deeper de-growth in the overall GDP. Excluding government final consumption expenditure, GDP contracted by nearly 30% in Q1 FY21, highlighting the harshness of the economic situation during the Covid-19 crisis.Aditi Nayar, Principal Economist, ICRA
Nayar said the wide discrepancy between the double-digit growth of government final consumption expenditure on the expenditure side, and the contraction in public administration, defence and other services on the production side, is rather incongruous.
Revisions Imminent
Despite the steep reported contraction, the impact of the Covid-19 pandemic on the economy may still be underestimated in the data. Along with the use of substitutes to compute GDP, the data challenges in the case of other underlying macro-economic indicators like IIP and CPI will also have implications for these estimates, which are likely to undergo revisions, the government said.
Pronab Sen, former chief statistician of India, explained that the first round of revisions would take place when data from the Ministry of Company Affairs data is incorporated. The quarterly estimates are mainly based on corporate data of listed corporates, and not the smallest companies, he said. "We suspect that smaller companies would have done worse than the larger companies, so we should expect one round of revision on that count, he said. The second revisions will happen when the informal sector data comes in, which could lead to larger revisions."
While the GDP data is a lagging indicator, Sen said the steep contraction in the first quarter means that the full-year contraction could be worse than the 5% estimated by a number of economists.
Considering the revisions due, if we are looking at a GDP fall of 24% in the first quarter, unless something miraculous happens over the next three quarters, we are not talking about a negative 5% GDP growth but a negative growth which is significantly higher than that.Pronab Sen, Former Chief Statistician Of India
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