At -23.9% in Q1, worst-ever GDP contraction as lockdown bites

The economy suffered its steepest contraction at 23.9 per cent in the first quarter (April-June) of 2020-21 when the country was in a lockdown due to the Covid pandemic. This is perhaps the first contraction in a quarter since GDP data started to be collected in the 1950s. If the trend continues and the economy contracts on a full-year basis, too, that will be a first since 1979-80.

The latest data show that the industry and services sectors shrank 38.1 per cent and 20.6 per cent, respectively. The silver lining was provided by the farm sector, which grew 3.4 per cent during first three months. But agriculture’s share in GDP (Gross Domestic Product) is just 17 per cent, while services and industry account for 54 per cent and 29 per cent, respectively.

According to the data, manufacturing and construction are in deep recession, which means job creation will be affected further.

Chief Economic Advisor Krishnamurthy V Subramanian said the poor April-June quarter economic performance is primarily due to the exogenous shock that has been felt globally. Economies world over, including India, went into a lockdown in the April-June period.

“Just to give a comparison, the UK, where the lockdown was less stringent than in India... the contraction there was 22 per cent. So, given the higher intensity of the lockdown (in India), this is actually along expected lines,” he said.

‘Better performance’

However, according to Subramanian, what is important is that India is experiencing a V-shaped recovery after the economy started unlocking. For instance, the core sector has been picking up, steadily improving from (-)38 per cent in May to (-)13 per cent in June and to (-)9.6 per cent in July.

Similarly, Railway freight traffic has reached 95 per cent of the level that it was at the same time last year. “It is in fact 6 per cent higher in the first 26 days of August compared to the same time last year,” he said, adding that power consumption is only 1.9 per cent lower than last year and e-way bill generation in August almost at the same level.

“India is definitely experiencing a V-shaped recovery, so we should expect better performance in the subsequent quarters,” Subramanian concluded.

Recovery in second half

CII Director-General Chandrajit Banerjee said that even as the first half of the current fiscal is expected to remain weak, “We can expect a recovery in the second half led by supportive fiscal and monetary policies. We have already started to see a discernible improvement in the many high-frequency indicators, which are expected to pick up further, going forward. In this context, the localised lockdowns being imposed by State and district administrations may be avoided so that the economic recovery can be kept on track.”

Chief Economist & Head Research at Knight Frank India Rajani Sinha felt that with the economy unlocking in the last few months, most parameters have improved to 70-90 per cent levels of the corresponding period of the previous year. However, “a sustainable recovery would depend on the time taken to contain the spread of the Covid virus. It is very important for consumer sentiments and consumer spending to improve for the economy to bounce back. Increased infrastructure investment by the government and demand-boosting measures are very much required at this point for the economy to recover,” she said.

COMMENT NOW