NEW DELHI: India’s economy is estimated to contract by a record 7.7% in 2020-21 ravaged by the impact of the Covid-19 induced lockdown, with the crucial services and manufacturing sectors taking a massive hit and the farm segment expected to remain the only bright spot.
The first advance estimate released by the National Statistical Office (NSO) on Thursday comes ahead of the Union budget on February 1, which is expected to unveil fresh measures to get growth back on track.
The NSO data estimated the economy to contract by 7.7% compared to an 11-year low growth of 4.2% in 2019-20. This will be the first contraction in over four decades since the 5.2% fall recorded in 1979-80. This is also the record contraction since annual GDP data began to be published in 1951-52. The Reserve Bank of India estimates GDP to contract by 7.5% while other agencies forecast in the range of 7.4% to 10.3% decline for the current financial year and rebound next year on the back of the low base and measures unleashed by the government and the central bank.
The impact of one of the strictest lockdowns in the world has been evident on the economy with a record slump of 23.9% in the June quarter. The restart of economic activity has helped narrow the contraction to 7.5% in the September quarter, with the festival and pent-up demand lending a huge push. Most economists now estimate the economy to return to positive territory in the third and fourth quarters and move away from the technical recession that it entered with two consecutive quarters of contraction.
Thursday’s data showed only the farm and electricity sectors posted growth, with agriculture forecast to grow by 3.4% and electricity by 2.7% in 2020-21. The crucial manufacturing sector is estimated to contract by 9.4% compared to a 0.3% growth in 2019-20. Construction, which has been hit hard by the lockdown, is forecast to contract by 12.6% in 2020-21, while hotels, transport, communication and broadcasting services is estimated to decline by a record 21.4% in the current fiscal. The overall services sector, which accounts for nearly 60% of the economy, is estimated to fall by 8.8% in 2020-21 compared to a growth of 5.5% in 2019-20.
The NSO cautioned against interpreting too much from the latest numbers as it is based on extrapolation of 6 to 9 months of sectoral numbers as data collection had been hit by the lockdown. It said the estimates are likely to undergo sharp revision .
Reacting to the NSO data, the finance ministry said the movement of various high frequency indicators in recent months, points towards broad based nature of resurgence of economic activity.
The relatively more manageable pandemic situation in the country compared to advanced nations has further added momentum to the economic recovery, it said. The ministry said as two vaccines get emergency use approval, the government is undertaking preparations of a mass mega vaccination drive.
The NSO data showed that nominal GDP, which is excluding inflation, is estimated to a contract by a record 4.2% and has implications for calculating the fiscal deficit numbers. Except government expenditure (5.8%), all other segments of GDP are estimated to post a steep fall in 2020-21, with private final consumption expenditure falling by 9.5% and investment by 14.5%.
Economists said all eyes are now on the budget for measures to boost growth and help sustain the recovery that is underway.
“With inflation likely to have significantly picked up pace in December, monetary policy accommodation has been exhausted. Thus the budget could be the immediate starting point of a revival,” said Soumya Kanti Ghosh, group chief economic adviser at State Bank of India.
“However, a word of caution. The pandemic has exacerbated the risks associated with a decade-long wave of global debt accumulation. Debt levels have reached historic highs, making the global economy particularly vulnerable to financial market stress. The pandemic has also amplified the risk that contingent liabilities will be realized, which could further strain public finances,” said Ghosh.