India’s economic contraction worse than in most leading economies

India’s economy contracted by 23.9 per cent in April-June — the worst performance since quarterly measurement began in 1996. With the latest downfall in GDP, India is trailing behind all G7 countries — Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

The figures reflect poorly on the state of the Indian economy, where just before the pandemic, the government had aimed at transforming the economy, from an estimated $2.8 trillion, to $5 trillion by 2024, despite slowing growth and low demand.

As per data released by the National Statistical Office (NSO), gross value added (GVA) growth in the manufacturing sector contracted by 39.3% in the first quarter of 2020-21, from 3 per cent expansion a year ago. Some say the economy could see a contraction of nearly 10% in the year through March 2021.

However, farm sector GVA grew at 3.4%, compared to 3% in the corresponding period of 2019-20. The construction sector GVA contracted by a whopping 50.3% from 5.2% expansion earlier. Mining output declined by 23.3%, as against a growth of 4.7% a year ago.

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So far, the UK economy has seen the biggest slump in June quarter GDP among the top 20 economies of the world, with a 21.7% year-on-year plunge — its deepest recession on record.

In terms of contraction among global peers, India stands at the top with minus 23.9% (year-on-year contraction in real GDP), followed by UK (-21.7%), France (-19%), Gemany (-10.1), Japan (-9.9%), US (-9.1%).

The Chinese economy grew by 3.2% in April-June – as the Covid-19 rapidly spread across the globe — after recording a decline of 6.8% in January-March 2020.

Reacting to the data, chief economic adviser (CEA) KV said: “We are witnessing a V-shaped recovery as the economy unlocks E-way bills at 99.9% vs August last year despite local lockdowns. This will continue. Once the Unlock phase was undertaken, the decline has been progressively lower. The trend is one of a V-shaped recovery,” he said.

Many experts said the contraction was more than expected. They say the Indian economy has landed in a severe vicious cycle with the need for stimulating demand becoming paramount while the capacity to support demand by the government is at its weakest.

While the pandemic is responsible for causing historic GDP contractions in economies around the world, the situation in India has been made worse by more than 69,000 new infections a day and total cases topping 35 lakh — behind only the US and Brazil.

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The Indian economy even before the Covid-19 related lockdown was suffering on the demand side as all the demand drivers, except government final consumption expenditure (GFCE) like private final consumption expenditure (PFCE), gross fixed capital formation (GFCF) and net exports were floundering.