A huge for the Indian economy. Proving all predictions wrong, India’s gross domestic product or GDP contracted 23.9 per cent for the April-June period. On Monday, the official data showed that as the Covid-19 pandemic brought industries to a halt and rendered millions of people jobless, the country’s economy hit its lowest possible point.
As per reports, this marks the worst incidence of negative growth for India since 1996, when the Centre started publishing quarterly figures. India is now the worst among major Asian economies. In this article, we shall discuss all the factors related to this topic.
Here are everything you need to know about India’s record low GDP in 6 points
Monday’s GDP results fully captures the pandemic’s impact on the Indian economy. The figures are in stark contrast with expansion of 3.1 per cent in the previous quarter, and 5.2 per cent in the quarter ended June 30, 2019. A majority of experts and economic bodies predicted this. They had estimated contraction in the range of 15-25.9 per cent, with a median estimate of 19.2 per cent.
1. What the GDP data shows?
Today’s data showed that this is the beginning of India’s deepest recession on record. Unfortunately, this drooping trend of the economy is likely to follow in the second half of the fiscal year as well for we see the pandemic is continuing to rage affecting a pickup in economic activities. Generally when two consecutive quarters of the GDP go downward, it is termed as a recession.
India’s #GDP sees steepest decline, contracts -23.9% in the first quarter of FY 2020-21.
— The Quint (@TheQuint) August 31, 2020
2. Which sector is most affected?
If we look at the financial services, the biggest component of the country’s services sector, GDP shrank 5.3 per cent compared to the corresponding period last year. The pandemic’s impact on the manufacturing and construction was huge. It fell 39.3 per cent and 50.3 per cent respectively. However, the agriculture sector witnessed an expansion of 3.4 per cent.
3. Does the GDP data show the overall scenario?
Here, we have to remember that even though the economic restrictions are being gradually lifted, the data collection mechanisms of the country faced major obstacles in order to collect information about themarket developments. Therefore, it is believed that challenges about industrial production and consumer inflation will also have their implications which may not be reflected in the present GDP figures but can only be realised once enough data is collected and revised. However, collecting data amid a raging pandemic is a challenge itself.
4. How was pre-pandemic economy in India?
As many of us know that even before the pandemic struck, India, Asia’s third-largest economy, was witnessing a major slowdown as a crisis in the shadow bank sector affected new loans and battered the consumption demand which accounts for some 60% of the country’s GDP. But the nationwide lockdown since March end to curb the virus’s spread was a huge blow to the economy like no other. Businesses came to a standstill and millions of migrant workers fled the cities for their rural homes.
5. What the experts are saying?
Shashank Mendiratta, an economist of IBM, New Delhi, in a report said, “While the overall growth print witnessed the weakest decline on record, this also marks a bottom in our view. Our assessment is that investment will likely stay weak, while consumption activity is likely to improve in subsequent quarters. For a broader recovery, however, supportive policy will need to provide a push.”
Similarly, Rajani Sinha, chief economist of Knight Frank India, Mumbai, opined that with the economy reopening in the last few months, most economic parameters have improved to around 90% level of last year’s corresponding period. But it is equally an imperative for the Centre to contain the spread of the virus for the full economic recovery. “Increased infrastructure investment by the government and demand-boosting measures are much required for the economy to recover,” Sinha said. Several non-experts, commoners and even celebs have spoke about this biggest economic shocker of India.
-24% GDP growth (contraction) last quarter.
The worst ever for India.
Can we please, please focus on this and how to bring this back? This affects a lot of people and their future.
— Chetan Bhagat (@chetan_bhagat) August 31, 2020
6. Can India recover from this slump?
Chief Economic Adviser K Subramanian spoke of some positive signs. According to him the country is experiencing a V-shaped recovery. He highlighted upon indicators like the core sector growth which has witnessed a slower rate of decline, every month since April.
“Core sector growth which had declined by 38 per cent in April has progressively reduced to 22 per cent in May, 13 per cent in June and 9.6 per cent in July 2020. Core sector output is clearly showing a V- shaped recovery,” Mr Subramanian said in a report. The expert also mentioned other indicators like railway freight traffic, power consumption, e-way bills and growth in agriculture sector, which have recorded near-normal levels or, in fact a positive uptick.
At the same time, the Reserve Bank of India has decreased the key interest rates by 115 basis points (1.15 percentage point) since March in order to revive the economy, but it is also watchful of worsening inflationary pressures. The RBI has already shifted gears to focus on economic health for the time being, instead of inflation. From this, the only thing that we hope for is recovery. It is quite expected that the GDP will not immediately return to what it was and the process will only be a slow and lengthy.
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