First economic contraction in 4 decades: India's GDP shrinks 23.9% in Q1, FY21

The first economic contraction since 1980, and maiden quarterly GDP fall on record, follows limited activity during the June quarter amid lockdowns to control the spread of the coronavirus pandemic

India’s gross domestic product (GDP) contracted 23.9 per cent in the April-June quarter of 2020-21 from that in the same quarter last financial year, showed official data released by the National Statistics Office (NSO) on Monday. This was mainly on account of limited economic activity in the country during the quarter amid lockdowns to control the spread of the coronavirus pandemic.
 
This is the first instance of an economic contraction for the country in at least four decades, and also the first GDP decline since India began publishing quarterly numbers in 1996. In the January-March quarter of this year, the economy had grown by 3.1 per cent year-on-year — the lowest rate in over 17 years — and by 5.2 per cent in the June quarter of 2019-20. The rate of India's GDP growth had declined from 6.1 per cent in FY19 to 4.2 per cent in FY20, the slowest in 11 years.

Gross value added (GVA) for the country declined by 22.8 per cent, manufacturing by 39.3 per cent, and mining by 23.3 per cent. Gross fixed capital formation (GFCF) contracted 52.9%, electricity 7 per cent, and construction activities 50.3 per cent. Agriculture and allied activities, meanwhile, were a bright spot, growing 3.4 per cent during the quarter.

India is not alone in reporting dismal GDP numbers. Even as China managed to buck the trend and, in fact, see an expansion of 3.20 per cent during the April-June quarter, the UK’s economy shrank 21.7 per cent, Germany’s by 10.10 per cent, and the US’ by 9.10 per cent.

 
The official figures were broadly in line with estimates by various agencies, all of which had forecast a decline in GDP during the quarter, though they had different in the extent of drop — from 15 per cent to 35 per cent.

Former chief statistician Pronab Sen had projected a GDP contraction of 25 per cent to 35 per cent but cautioned that the NSO might come up with a much lower contraction (15-16 per cent) because corporate data would be used as proxy for the informal sector.
 
ICRA Principal Economist Aditi Nayar, who had estimated a 25 per cent fall, had said: “We caution that the divergence in the performance of the formal and informal sectors might not get fully represented in the GDP data, given the lack of adequate proxies for the latter.”

 
Economists surveyed by Bloomberg as of Friday had estimated a 19.2 per cent GDP decline in the quarter. Bloomberg had quoted HSBC Holdings Plc Chief India Economist Pranjul Bhandari as saying: “The statistics office could announce GDP contraction of 17.5% year-on-year, which could subsequently be revised to a 25 per cent contraction when the informal sector survey is available.”
 
The lockdown and the gradual unlock in several states contributed to a sharp 40.7 per cent year-on-year contraction in manufacturing volumes, according to ICRA’s Nayar.
 
India Ratings had projected a 17.03 per cent fall. “Business disruption from March to May has been so severe for production, supply/trade, and activities, especially in sectors like aviation, tourism, hotels and hospitality, that FY21 GDP growth is expected to contract for the first time since FY80,” said India Ratings Chief Economist Devendra Pant.