The country’s Gross Domestic Product (GDP) is estimated to have contracted by around 20 per cent on an average in the April-June quarter, with several economists estimating it between (-)13.6 per cent and (-)25.5 per cent. A breakdown of economic activity amid a nationwide lockdown against the outbreak of COVID-19 pandemic hit the first quarter’s GDP significantly. The economic activity was expected to recover slightly with the unlock process, but the July-September quarter’s growth estimates are now being revised downwards with intermittent localised lockdowns resulting in slack economic activity and weak demand.
Former Chief Statistician of India Pronab Sen put the degrowth estimate for April-June to be around (-) 20 per cent, adding it does not capture the real depth of the pandemic’s adverse impact on the MSME sector and agricultural incomes. Barclays has projected the economy to contract 25.5 per cent in April-June, while ICRA has projected a contraction of 25 per cent. HDFC Bank has projected a GDP contraction of 21 per cent, State Bank of India has projected 16.5 per cent contraction, while India Ratings has projected a contraction of 13.5 per cent.
Quarterly GDP estimates are largely linked to corporate results, which have reflected a better-than-expected status in the first quarter, along with a likely 3.5 per cent-plus growth in the agricultural sector, Sen said. Also, the essential goods such as FMCG, pharmaceuticals continued to be produced and supplied, with their contribution to manufacturing estimated to be roughly 40 per cent, HDFC Bank’s Chief Economist Abheek Barua said.
While agriculture and some services such as financial services and communication have recorded a growth, sectors such as manufacturing and mining took a major hit, Devendra Kumar Pant, chief economist, India Ratings, said. Sectors related to discretionary consumption and investment, such as aviation, automobiles, and capital goods were the worst affected, whereas less discretionary sectors such as electricity and consumer non-durables fared better during Q1, Aditi Nayar, principal economist, ICRA said.
The real depth of the economic crisis on the small-scale sector and informal sector, however, will not get reflected in the GDP numbers as the factory output figures are used to project for unincorporated manufacturing, Sen said. Also, in a trend reminiscent of demonetisation, corporates have fared better than MSMEs, which are in a far worse situation which along with a weakness in farm incomes is also expected to hit demand further in the coming year, he added. “Procurement would have seen good price realisation but that happens in specific parts of the country. But mandi prices and wholesale prices are not doing well at all. So the net result on farmers’ incomes is a question mark even though production is good. But if there is loss in income because of price weakness, then that will show up in their demand for non-agricultural products. This is like what happened during demonetisation. During demonetisation, corporate sector did not suffer, MSMEs and agricultural incomes did, but it showed up a year later when the overall demand for the products went down and then it started showing in corporate results. Something like this will happen, a part of that impact will also get picked up in GDP then,” he said.
Among states, as per an SBI report, Maharashtra is set to face the biggest loss, accounting for 14.2 per cent of GDP loss. “Using the bottom-up approach we also estimated total GSDP loss due to Covid-19 is at 16.8 per cent of GSDP. State-wise analysis indicates top 10 states accounted for 73.8 per cent of GDP loss with Maharashtra contributing 14.2 per cent of total loss, followed by Tamil Nadu (9.2 per cent) and Uttar Pradesh (8.2 per cent),” it said.
States’ cases and share in GDP along with localised lockdowns reflect in the growth estimates for the second quarter as well. Barua expects the economy to contract 11 per cent then, worse than (-)7.5-(-)8.0 per cent Estimated earlier, with some states showing activity closer to semi-normal level like Haryana, Punjab, parts of Maharashtra, Gujarat and other states like West Bengal, Karnataka, partially Tamil Nadu entering semi-lockdown. “Indian economy is an integrated system with interlinked supply chains, so unless you have a full unlocking in some sense you will never be able to get back or come even remotely close to the kind of GDP growth you saw in the past,” he said.
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