At 7.7%, India’s GDP set for biggestcontractionsince’52
The GDP is estimated to shrink at a steeper rate than the 7.5% drop forecast by RBI
NEW DELHI: India’s economy is set for its biggest annual contraction in records going back to 1952 as the rapid spread of coronavirus cases and measures to contain them hurt businesses and households.
Gross domestic product will shrink 7.7% in the financial year ending March 2021, the statistics ministry said in its first advance estimate published on Thursday. That’s steeper than a 7.5% drop forecast by the Reserve Bank of India (RBI), as well as economists surveyed by Bloomberg.
As per the first advanced estimates of the national income released by the National Statistical Office (NSO) on Thursday, there was contraction in almost all sectors with the exception of agriculture.
“Real GDP or GDP at Constant Prices (2011-12) in the year 2020-21 is likely to attain a level of ₹134.40 lakh crore, as against the Provisional Estimate of GDP for the year 2019-20 of ₹145.66 lakh crore... The growth in real GDP during 2020-21 is estimated at -7.7% as compared to the growth rate of 4.2% in 2019-20,” it said.
The estimates may undergo sharp revisions due to disruptions caused by steps to contain the pandemic, said the statistics office, which had suspended data collection coinciding with a nationwide lockdown.
In the current fiscal, manufacturing sector is likely to see a contraction 9.4% whereas growth was almost flat at 0.03% in the year-ago period.
The NSO estimates significant contraction in ‘mining and quarrying’, and ‘trade, hotels, transport, communication and services related to broadcasting’. Agriculture sector is estimated to see a growth of 3.4% in 2020-21. However, it will be lower than 4% growth recorded in 2019-20.
The economy contracted 23.9% in the first quarter and 7.5% in the second quarter
The rupee declined 0.3% at close in Mumbai on Thursday before the data was published, while sovereign bonds were little changed.
Despite one of the strictest coronavirus lockdowns, India is now home to the world’s second-highest virus infections— which at more than 10.4 million has kept the government from fully reopening the economy. The contraction in the nation’s GDP will also be the first since 1980, when the economy shrank 5.2%, and is set to be the worst slump in Asia after Philippines’ estimated 8.5%-9.5% drop.
But unlike the Philippines, which is expected to extend the decline for a second straight year in 2021, economists forecast India to bounce back strongly in the next financial year starting April 1, helped by a string of fiscal and monetary steps. For now, the country is in a recession after two straight quarters of contraction in GDP.
“While weak global growth and a sudden volteface on domestic pandemic control are key short term risks, over the medium term, easier financial conditions, stronger global demand and accelerated vaccinations could lead to an economic upcycle in 2021,” Sonal Varma and Aurodeep Nandi, economists at Nomura Holdings Inc. in Singapore, wrote before the data was released.