India likely to post worst quarterly GDP fall in Q1

Hit hard by the complete lockdown announced to contain COVID-19, India’s economy is likely to witness the biggest fall in quarterly GDP in the three months ended June.

The quarterly GDP data, to be released later in the day on Thursday (August 31), is likely to show a 19.2 per cent fall between April and June compared with a year ago, a Bloomberg’s survey of economists said, in what would be the steepest decline since India started publishing quarterly figures in 1996.

The economy had come to complete halt after Prime Minister Narendra Modi announced a complete lockdown on March 24 amid the rapid spread of the coronavirus in the country. The lockdown that was initially announced for three weeks extended to more than two months and the restrictions were gradually eased from June 1. As a result, two months — April and May — were a washout for many businesses.

Many companies, especially the MSMEs, faced severe stress not only because of lack of business but also of labour, as many people returned to their native places in large numbers, unable to make ends meet.

The Indian economy, which was one of the fastest-growing major economies till a few quarters back, was struggling even before the COVID struck due to the crisis in the banking sector caused by troubles at Yes Bank affected consumption, which accounts for a big chunk of India’s GDP.

Now, the COVID crisis would mean that the economy will contract for the full year ending March 2021. Many research reports said the GDP will likely fall about 6 per cent in FY21.

The lockdown dealt an “unprecedented blow to the economy,” said Rahul Bajoria, chief India economist at Barclays Plc, Bloomberg reported. According to his estimates, the economy contracted by 25.5 per cent in the first quarter of the current fiscal.

“With the national lockdown measures being extended through all of April and May, and most states extending their own partial restrictions through all of June, the rural economy, government spending and essentials will likely be the only sectors mitigating some of the decline,” he said.

“Our analysis shows some sectors of the economy — agriculture, information technology services and central government expenditure — recorded a year on year growth despite the disruptions due to the pandemic,” said Abhishek Gupta, Bloomberg India economist. “These sectors have slightly ameliorated the negative impact of the lockdown, but the drop in GDP is still expected to be large and only marginally better than our earlier expectation.”

“The statistics office could announce GDP contraction of 17.5 per cent year-on-year, which could subsequently be revised to a 25 per cent contraction when the informal sector survey is available,” said Pranjul Bhandari, chief India economist at HSBC, Bloomberg reported.