FinMin estimates Apr-Jun GDP to contract 20-30% due to lockdown

NEW DELHI: The Indian economy is likely to have contracted 2030% in Apr-Jun as economic activity came to a near halt due to the nationwide lockdown, according to an internal estimate of the finance ministry.

"April we see almost a 60% wipe out and the trend continued in May, but with some more activity," a senior finance ministry official told Cogencis.

Apart from some essential services and agricultural activity, most sectors were shut in the first two months of the quarter, the official said.

Things substantially improved in June with the gradual opening up of the economy, the official said.

The GDP may have expanded in June, he said. India, which imposed one of the most stringent lockdowns in the world in late March to curb the spread of the coronavirus pandemic, lifted most restrictions by the middle of May.

The lockdown had severely hit economic activity with factory output contracting 57.6% in April and 34.7% in May.

However, high frequency data such as rail freight traffic, electricity generation and manufacturing purchasing managers' index suggest that the economy is limping back to normal. India's manufacturing PMI, which hit a record low of 27.4 in April, improved to 47.2 in June, though manufacturing activity is still in contraction.

In a recent report the finance ministry said the loss of economic output from more than two months of the lockdown was first triggered from the supply side as labour stayed away from work.

The demand side caused further loss of output as consumption of goods and services dependent on customer mobility fell, the report said. The ministry, however, said high frequency data indicates emergence of green shoots in the economy.

Though the finance ministry estimates on Apr-Jun GDP are largely in line with market estimates, some have put the contraction at as much as 45%.

Economists expect India's GDP to contract for the first time in over 40 years in the current financial year ending March due to the pandemic and the lockdown.