NEW DELHI: The country’s economic growth in the January-March quarter of 2019-20 expanded at its slowest pace in 40 quarters at 3.1%, dragged down by the manufacturing and construction sectors and some impact of the national lockdown in late March. Only the farm sector and government spending stayed firm.
Data released by the National Statistical Office (NSO) on Friday also showed overall GDP growth in 2019-20 slowing to an 11-year low of 4.2%, lower than the earlier estimate of 5%. Several major economies which had imposed lockdowns earlier have witnessed a contraction in their January-March quarter growth while a handful of countries led by India have managed to post expansion during the period. The NSO said that both the quarterly as well as annual GDP growth numbers are likely to undergo revision as data flow from “economic entities had been impacted.”
Economists say the lockdown, which has crippled economic activity, will have an impact on growth in the coming quarters with several research houses, investment banks and brokerages estimating a sharp contraction.
Several key sectors of the economy such as the services sector, which accounts for nearly 60% of the economy, have suffered due to the lockdown and led to large job losses. The government has unveiled a relief package to nurse growth but experts say more needs to be done to help revive growth.
The Reserve Bank of India (RBI) has also cut rates sharply since the lockdown and has unveiled massive liquidity injection to help the economy gather momentum but it has estimated growth to contract in 2020-21 due to the impact of the lockdown in the country as well as across the globe. The IMF expects India and China to be the only economies to register growth while other economies around the globe are expected to contract sharply, a view not shared by several other economists who expect the Indian economy to contract.
The manufacturing, construction and services sectors contracted in the March quarter which economists attributed to the impact of the lockdown. The trade, hotel and transport and manufacturing sector saw growth drop to the lowest level since 2011-12 in Q4 FY20, according to Care Ratings.
The farm sector posted a robust near 6% growth in the March quarter while overall expansion was at 4% for 2019-20.The sector is expected to provide some support to overall growth in the quarters ahead as farm production is expected to remain strong.
“Private consumption which is a driver of the economy (accounting for 60% of GDP) witnessed a notable decline in growth rates in Q4 FY20 from year ago (2.7% v/s 6.2%). On the other hand, government consumption witnessed near stable year on year growth (14%). The fall of private consumption in the quarter gone by highlights the demand destruction that has been caused by the pandemic,” said Madan Sabnavis, chief economist at Care Ratings. He said investments witnessed a sharp contraction of 6.5% in Q4 FY20, adding that as a percentage of GDP, investments (as measured by the Gross Fixed Capital Formation) at 26% in Q4 FY20 was the lowest under the new series (2011-12).
Economists said they estimate a further deterioration in the health of the economy in the months ahead as the impact of the lockdown becomes more pronounced and some said the prospects for Asia’s third largest economy appear to be grim. The chief economic adviser in the finance ministry Krishnamurthy Subramanian expects a V-shaped recovery once the pandemic gets over, relying his projection one the recovery that the economy staged post the Spanish flu in 1918.
“The further extension of the lockdown till the end of May 2020 amid graded relaxations, and the expectation of substantial delays in getting the full supply chain operational, especially given the likelihood of enduring labour mismatches following the return of migrant workers to their home states, would further dampen economic activity,” said Aditi Nayar, principal economist at ratings agency ICRA.
“We expect Indian GDP (at constant 2011-12 prices) to contract by 25.0% and 2.1%, respectively, in Q1 FY2021 and Q2 FY2021, which implies that a recession is underway. Subsequently, we anticipate muted GDP growth of 2.1% and 5.0%, respectively, in Q3 FY2021 and Q4 FY2021, which still entails a full year contraction of 5.0% in FY2021,” said Nayar.