GDP likely to contract
India’s real Gross Domestic Product is estimated to contract by 7.7% in 2020-21, with Gross Valued added shrinking by 7.2%.
- India’s economy had expanded 4.2% in 2019-20, but entered a recessionary phase with two successive quarters of sharp contraction triggered by the COVID-19 lockdowns.
- Following a 23.9% collapse in the economy in the April-June period, the GDP shrank by 7.5% in the second quarter - leading to a real GDP contraction of 15.7% in the first half of 2020-21.
- The economy will surface in the second half to record near-zero growth, or a mere 0.1% contraction.
- Based on an uptick in several indicators in the past few months, several agencies have upgraded their estimates, with the RBI recently projecting a 7.5% contraction in the year compared to its earlier estimate of a 9.5% decline.
- Just two sectors are estimated to record positive growth in Gross Valued added, with agriculture continuing its strong run through the first half of the year into the second half (3.4%) and electricity, gas, water supply and other utility services posting (2.7%).
- The sharpest decline in the pandemic-dented year is expected in trade, hotels, transport, communication and services related to broadcasting (-21.4%), followed by construction (-12.6%), mining and quarrying (-12.4%) and manufacturing (-9.4%).
- Public administration, defence and other services are also projected to contract by 3.7%, while financial, real estate and professional services shall record a marginal 0.8% decline year-on-year, as per the advanced estimates.
- Real GVA at basic prices is estimated at ₹123.39 lakh crore in 2020-21, against ₹133.01 lakh crore in 2019-20, while the real GDP in 2020-21 is likely to attain a level of ₹134.40 lakh crore, as against the provisional GDP estimate for 2019-20 of ₹145.66 lakh crore.
- The continuous quarter-on-quarter growth endorses the strength of economic fundamentals of the country to sustain a post lockdown V-shaped recovery.
- On the demand side, real GDP in 2020-21 has been supported by an estimated increase in Government Consumption Expenditure by 5.8%.
- This estimate, however, has a shelf life of only two months and is only used as an input for Budget arithmetic.
- The GDP and GVA for 2020-21 would be revised further downwards in estimates that will be released in February and May.