GDP shrinks by record 23.9%

Indian economy fares worst in world during April-June; ` 8.5 lakh crore worth business lost

India’s economy saw its steepest fall in GDP growth in April-June 2020, the first quarter of this fiscal, as it contracted by 23.9 per cent — negative growth for the first time — as Coronavirus-related lockdowns weighed on declining consumer demand and investment.

This is the sharpest contraction since Independence of the country and contrasts with 3.1 per cent growth in January-March quarter and 5.2 per cent expansion in the same period last year, data released Monday showed. This is the world’s worst performance for the period.

GDP at constant (2011-12) prices in Q1 of 2020-21 was estimated at `26.90 lakh crores, against `35.35 lakh crores in Q1 of 2019-20, showing a contraction of 23.9 per cent. India’s economic activities were crippled after the nationwide lockdown imposed in

March to tackle the spread of Covid-19.

The contraction of 23.9 per cent would mean the loss of nearly `8.5 lakh crore worth business during the April-June period.

India’s economic contraction is the worst among the G20 countries.

The data shows manufacturing has already entered recession as output fell 39.3 per cent in the June quarter after falling 1.4 per cent in the earlier quarter. The positive news is that the farm sector’s annual growth stood at 3.4 per cent in April-June, offering hope that the rural economy can support millions of migrant workers who returned to their villages during the lockdown period.

The data further showed that the manufacturing, construction and trade sectors reported massive slumps of 39.3 per cent, 50.3 per cent and 47 per cent respectively.

The BSE Sensex, which made a strong start and touched the 40,000-mark in the morning session, surrendered all gains and plummeted over 1,600 points from the day’s high. It finally ended at 38,628.29, down 839.02 points or 2.13 per cent.

Chief economic adviser K.V. Subramanian said: “We are witnessing a Vshaped recovery as the economy unlocks e-way bills at 99.9 per cent vs August last year, despite local lockdowns. This will continue. Once the Unlock phase was undertaken, the decline has been progressively lower. The trend is of a V-shaped recovery. There is still residual uncertainty, that will persist till pandemic isn’t brought under complete control.”

Economists, however, believe that India’s economy may shrink by around 10 per cent in the current fiscal year.

Icra’s principal economist Aditi Nayar said, “As expected, GDP (Gross Domestic Product) and GVA (Gross Value Added) plunged precipitously in the lockdown-ridden quarter of Q1 FY2021, both printing similar to our forecast of a 25 per cent contraction. Moreover, incoming data on the MSME and less formal sectors could manifest in a deeper contraction when revised data is released subsequently.”

ECONOMISTS, however, believe that India’s economy may shrink by around 10 per cent in the current fiscal year.