GDP to shrink 7.7% in FY21, says Govt’s first advance estimate

Our Bureau New Delhi | Updated on January 07, 2021

Economists question projections; FinMin optimistic of resurgence in economic activity

The economy is expected to contract  7.7 per cent  in 2020-21, according to the first advance estimate (AE) released by the Government on Thursday.  The estimate is in line with the Reserve Bank of India’s forecast of (-)7.5 per cent, but lower than the projections made by various global agencies.

 The Asian Development Bank has projected a contraction of 8 per cent, while the World Bank sees the economy shrinking  9.6 per cent. Goldman Sachs estimated  a 10.3 per cent contraction while Moody's  expects a de growth of 10.6 per cent.

Yet, it is the worst-ever contraction.

In a statement, the Finance Ministry said: “The Advance Estimate of 2020-21 reflects continued resurgence in economic activity in Q3 (October-December) and Q4 (January-March) — which would enable the Indian economy to end the year with a contraction of 7.7 per cent. The continuous quarter-on-quarter growth endorses the strength of economic fundamentals of the country to sustain a post-lockdown V-shaped recovery.”


Short on data?

But economists are taking this optimism with  some caution. Some even  questioned the reliability of such a prediction. The country’s first Chief Statistician Pronab Sen said  if he was in the NSO’s (National Statistical Office’s) shoes, he would have not made a prediction in the current situation. “Normally, first advance estimates of any financial year are based on data of three quarters. However, this year we have data of two quarters and based on that first estimate for third quarter was encapsulated and then it was done for fourth quarter. Also, corporate sector’s filing data are not available. Considering all these, it is difficult to make much credible estimate,” he said.

He felt that the detailed data of the corporate sector will be available at the end of January. “The second advance estimate, which will be released on February 26, should give a better picture of the economy,” he hoped.

Consumption expenditure

The Finance Ministry expects the Government’s consumption expenditure to grow 5.8 per cent. On the supply side, agriculture is estimated to register a positive growth of 3.4 per cent against 4 per cent, per the Advance Estimate of 2019-20. In the manufacturing sector, electricity is expected to register a positive growth of 2.7 per cent. The pandemic and associated public health measures have affected the contact-sensitive services sector where trade, hotels, transport and communication are seen contracting by 21.4 per cent this fiscal year.

“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 as compared to advanced nations has further added momentum to the economic recovery,” it said.

Strong recovery

DK Srivastava, Chief Policy Advisor at EY India, said the better-than-anticipated numbers can be attributed to several factors such as the strong recovery in construction, , real estate, finance and professional services and public administration, defence and other service sectors besides the steady performance of the agriculture sector.

“The 3.3 per cent estimated growth during second half for public administration, defence and other services as compared to the over 11 per contraction during the first half is the biggest transformation, but it is subject to higher expenditure. Also, financial, real estate and professional services  are expected to grow 7.1 per cent and construction by 4.4 per cent,” he said. Higher expenditure will help in ending the fiscal year  on a better note than anticipated, he said adding  the fiscal deficit  could be higher than the already enhanced ₹12-lakh crore. “We assess that the government may revise upwards its borrowing target so as to exceed 7 per cent of 2020-21 nominal GDP and signal a move towards restoring fiscal consolidation,” he said.

Published on January 07, 2021

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