GDP data for Q1 coming today to reveal how deep Covid has cut

The official view of how the economy fared during the Covid lockdown period will be revealed on Monday when the Government releases GDP data for the April-June period — the first quarter of 2020-21. Research agencies have estimated a GDP contraction ranging from 15 per cent to 26 per cent.

This will be the first official estimate of the impact on the economy in a full quarter due to Covid-19. Few doubt that Industry and Services segments will show deep contraction as April and may were a washout with the stringent nationwide lockdown. Most expect the good news to come from Agriculture, which will show a robust performance thanks to a favourable monsoons, robust rabi production, large procurement of foodgrains and good kharif sowing.

Services, Industry and Agriculture have shares of 54 per cent, 29 per cent and 17 per cent respectively in the GDP.

Notably, high frequency indicators such as the Index of Industrial Production (IIP), PMI manufacturing, and auto sales contracted sharply during the June quarter.

In a note, India Ratings said the contraction could be a little over 17 per cent, deeper than its earlier projection of 13.6 per cent. Two-three consecutive good harvests generally translate into a robust rural demand. So, there is a belief that while the Industry and Services sectors are still reeling under the Covid impact, the agricultural sector could become an engine for economic recovery.

However, a large part of the rural demand, despite the encouraging sales numbers of motorcycles and tractors in June 2020, comes from consumer non-durables.

Among the use-based Index of Industrial Production classification data, the first category to record positive growth after the lockdown was gradually lifted was consumer non-durables, which grew 14 per cent year-on-year in June.

“Since the share of agriculture in India’s gross value added is about 17 per cent, Ind-Ra believes rural demand at best can extend support to consumption demand, but cannot be a substitute for urban demand,” said Sunil Kumar Sinha, Principal Economist with India Ratings.

Soumya Kanti Ghosh, SBI’s Group Chief Economic Advisor, in his reserch report, said that per capita monthly expenditure in urban areas is at least 1.8 times higher than that of rural areas and rural wage growth in real terms might still be negative. Further, this indicates that rural recovery will not have much of an impact on GDP growth.

Though, with some caveats SBI has lowered the rate of contraction, but using the bottom-up approach, it estimated a 16.8 per cent loss in total GSDP (Gross State Domestic Products) due to Covid-19.

State-wise analysis indicates that the top 10 States accounted for 73.8 per cent of the total GDP loss with Maharashtra leading with 14.2 per cent followed by Tamil Nadu (9.2 per cent) and Uttar Pradesh (8.2 per cent). The all-India per capita GDP loss is around ₹27,000 with States such as Tamil Nadu, Gujarat, Telangana, Delhi, Haryana, and Goa taking a hit of more than ₹40,000 per person in FY21.

According to ICRA, the economic performance was primarily weighed down by the considerable drag imposed by three key production sub-sectors, — manufacturing, construction, and trade, hotels, transport, communication and services related to broadcasting. The agency has projected a contraction of 25 per cent

“Our assessment draws from the available data for volumes and profitability for the industrial and services sectors, the expectation of distress in the MSME and the relatively informal sectors, as well as the favourable rabi harvest and government revenue spending,” said Aditi Nayar, Principal Economist, ICRA.

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