GDP falls ‎23.9% ‏in first quarter

September 04, 2020

GS III: ECONOMY – INDICATORS

GDP falls 23.9% in first quarter

The Indian economy saw its worst contraction in decades, with Gross Domestic Product (GDP) shrinking by a record 23.9% in the April to June 2020 quarter in comparison to the same period in 2019, according to data released by the National Statistical Office.

The contraction reflects the severe impact of the COVID-19 lockdown, which halted most economic activities, as well as the slowdown trend of the economy even pre-COVID-19.

Economists expect this to contribute to a contraction in annual GDP in 2020, which may be the worst in the history of independent India.

Economists expects annual GDP to contract 5%-7% in 2020-21, noting that the last contraction of the economy occurred in 1979-80, when GDP shrank 5.2%. There have been four other instances of minor contraction between 1965-68, and 1972-73, but this year is likely to be the worst since Independence.

Agriculture was the only sector which recorded a modest growth of 3.4% in year-on-year terms.

All other sectors saw contraction, with the steepest fall of 50% in construction, and the trade, hotels, transport and communication services category shrinking 47%.

Manufacturing shrank more than 39%, while mining and quarrying dropped 23%.

On the expenditure side, private consumption fell 26.7%, while investments, as reflected by gross fixed capital formation plunged 47%, and exports contracted almost 20%.

Government final consumption expenditure grew 16.4%.

“The major burden on the economy is the contraction you are seeing in private final consumption, which has a weight of almost 60% in the GDP.

“The government has so far focussed on supply side only, but unless they are willing to spend to spur demand side, the next year will also be dire.”

Fellow economist Pronab Sen agreed that the government needed to step up its own expenditure.

“Expecting people to draw down their savings indefinitely won’t be enough as much of the poor and middle class may have already wiped out their savings. The government can borrow from the market or the RBI (Reserve Bank of India) and I don’t understand their reluctance to do so. Is the government willing to let the economy go down the tube because they want to shore up their fiscal deficit numbers?” he asked. He expects a 10%-12% contraction in annual GDP, although he felt that the last quarter of the year may show some modest growth.

🛑पोस्ट अच्छी लगी हो तो शेयर जरुर कीजिए।

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