BLEMISHING GDP QUARTERLY RESULTS

The central government of India had ordered a complete lockdown of most of the manufacturing
and service sectors owing to the spread of COVID-19 on March 25 th barring the essential services and
medicines. Gradually, all the sectors of the economy started to see their incomes fall. India’s Gross
Domestic Product (GDP) for the April-June quarter (Q1) slipped by a sharp 23.9 per cent, the worst
contraction in the history of the Indian economy. In other words, the total value of final goods and
services produced this quarter is less than the total value of goods and services produced in the last
quarter. Let us take a look at the India’s GDP growth trajectory –

India’s Quarterly GDP Growth Trajectory between Q4 FY 2018-19 and Q1 FY 2020-21 –

GDP GROWTH TR A JECTORY %

5.7% 5.2% 4.4% 4.2% 3.1%

Q4 FY 2018-19 Q1 FY 2019-20 Q12FY 2019-20 Q3 FY 2019-20 Q4 FY 2019-20 Q1 FY 2020-21

-23.9%

In Q1 FY 2020-21, our GDP growth shrank to -23.9% against 3.1% in Q4 FY 2019-20. The GDP growth
stood at 5.2% in Q1 FY 2019-20 versus -23.9% in Q1 FY 2020-21.

India’s Annual GDP Growth % from 1957 to 2019 -

A nnual GDP Growth %

9.6
8 8.3
7.4 7
6.4 6.1
5.3 5.5
4.2

-1.25 1965- 1972-

1957-
-0.3
1979- 1990- 2006- 2012- 2013- 2014- 2015- 2016- 2017- 2018- 2019-
58 66 73 80 91 07 13 14 15 16 17 18 19 20
-3.7
-5.2

We observe from the data above, India had negative GDP growth rate 4 times in its history. After FY
1979-80, India has reflected negative growth in its GDP once again. Another fact is that ever since
India started calculating Quarterly GDP numbers in 1996, the GDP figures have never been negative
until now.

Have the world economies done better than us?

The weak economic performance has been primarily driven by exogenous shocks felt globally owing
to the global wide lockdowns and halt in the economic activities. The average GDP growth of these
economies have declined by 11.6% as shown in the chart. India is the worst hit economy after UK,
being at -20.9% GDP decline for Q1 FY 2020-21.

GDP Growth of Major Economies

(April-May) FY 2020-21 %
12.3
15
10
5
0
China Korea Australia Japan Russia USA India
-5 -3.2
-10 -7 -7.8 -8.9 -9.1
-15
-20
-25 -23.9
Source: Indian Express

Shrinking Sectors of Economy–

The most important and the fastest growing sector of Indian economy are services. Trade, hotels,
transport and communication; financial services, insurance, real estate and professional services, social
and personal services account for more than 60 percent of GDP and create the maximum new jobs in the
country. Agriculture, forestry and fishing constitute around 12 percent of the output, but employs more
than 50 percent of the labour force. Manufacturing accounts for 15 percent of GDP, construction for
another 8 percent and mining, quarrying, electricity, gas and water supply for the remaining 5 percent.

The National Statistical Office (NSO) data exhibits that all key sectors except agriculture witnessed
contractions. Construction witnessed a steep drop of 50.3 per cent while the manufacturing industry
saw a 39.3 per cent fall. Electricity, gas, water supply and other utility services slipped 7 percent.
Trade, hotels, transport, communication and services related to broadcasting contracted 47 percent.
Only the agriculture, forestry and fishing industry witnessed a growth of 3.4 per cent in the June
quarter. As per the government data, the gross value added (GVA) at basic price at constant terms
during the June quarter shrunk 22.8 per cent. The GVA figures are depicted in the chart –
 Quarterly Estimates of GVA at Constant Prices (2011-12) in April-June 2020-21
10 8.8 60
39.3 7.7 40
8 6
6 4.7 5.2 20
3.4 3.5 -5.3 0
4 3 3 -7 -10.3
-23.3 -20
2 -40
-50.3 -47
0 -60

2019-20 2020-21 Linear (2020-21)

Source: MOSPI

What led to GDP Contraction?

Gross Domestic Product (GDP) represents the total monetary value of final goods and services of the
country. In any economy, the GDP is pulled by four engines of growth that are consumption, private
investment, government expenditure and Net exports.

Growth Difference %Change Contribution

Growth Engines of GDP (FY19-20 and FY20-21) (YOY) to GDP %
Consumption -531803 -27 56.4
Private Investment 533003 -47 32
Government Expenditure 68387 16 11
Net Exports 192917 165 0.6
Total 845711 -23.9  
Source: MOSPI and Indian Express

 Due to the fall in the economic activities induced by the lockdown, the demand took a
massive blow. Consumers had stopped their discretionary spending as people lost their jobs
leading to a high rate of unemployment, falling incomes and the overall consumption
declined drastically.
 The businesses ran into tight liquidity situation when they witnessed the severe supply
shortages and factors of production like labour and capital, depleting. The investments
plummeted as the incomes started to fall and the domestic consumption crashed.
 It was the government expenditure and the net exports during the Q1 FY 2020-21 that could
lift the economy from one end and did not let the GDP to dive down deeper than -23.9%,
however still more than market expectations of -18%.
 During the lockdown period, the government had increased their spending through
quantitative easing measures aimed for different sectors and expansionary monetary
policies adopted by RBI to consistently inject liquidity in the market so that money supply
keeps circulating and do not dry up the economy. The net exports are positive for the
 Quarter showing good signs of recovery on face but amidst the pandemic, the positive figure
also indicates the shallow demand in our economy induced by shrinking economic activities.

Final Words –

Now that the government has lifted the lockdown restrictions hence the supply shortages seem to
have been sorting gradually. We read mild signs of recovery taking place as in that 2 nd hand
passenger vehicles and LCV’s are picking up demand, demand for auto-fuels rising due to inter and
intra-state movement of vehicles. Besides, the micro indicators of growth suggest that the
contraction is slowing with gradual reopening of sectors like refinery products, crude oil, hydro-
generation, passenger vehicle production, petrol and diesel consumption, air passenger growth, GST
e-way bill, all have shown some improvement in their output in July 2020-21 compared to April-June
FY 2020-21.

And, usually the reforms adopted take at least 12-24 months to show their full effects on the
economy.