Q1 GDP numbers show economic outlook fraught with uncertainty

The effects of the Covid-19 health disaster and the related lockdowns on the financial state experienced been awaited with bated breath by economists and non-economists alike. The National Statistical Place of work (NSO) has now released its first estimates for the April – June 2020 quarter of the fiscal 2020-21 (Q1FY21), which peg the year-on-year (YoY) contraction in GDP and GVA at 2011-twelve charges at a historic minimal 23.9 per cent and 22.8 per cent, respectively, equivalent to our forecast of a 25 per cent shrinkage in Indian financial activity throughout the lockdown quarter.

On the manufacturing side, development, producing and trade, inns, transportation, interaction and providers similar to broadcasting, which collectively account for 45 per cent of the financial state, have been acutely affected by the lockdown in Q1 FY2021, in line with our anticipations. For instance, the halt in activity for 20 times in April 2020 as very well as the uneven recovery thereafter, resulted in the GVA of development halving in Q1 FY2021. Driven by the 3 aforementioned sub-sectors, business and providers recorded eye-watering de-development of 38.1 per cent and 20.six per cent, respectively, in that quarter.

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Surprisingly, public administration, protection and other providers also posted a contraction of ten.3 per cent in Q1 FY2021, in spite of the sharp development in authorities paying out. The considerably less affected sectors contain electrical power, fuel, drinking water provide and other utilities, and monetary, genuine estate and expert providers, which escaped with just solitary-digit de-development in that quarter.

Agriculture, which benefitted from the document-higher Rabi harvest for numerous crops, recorded a increase of 3.4 per cent in Q1FY21, broadly unaffected by the lockdown.

On the expenditure side, gross fixed funds development shrunk by a steep forty seven.1 per cent in Q1FY21, with investment activity as very well as undertaking bulletins receiving bruised by the pandemic, even as authorities funds paying out grew on a little foundation.

Additionally, private remaining usage expenditure contracted by as much as 26.seven per cent in throughout the period under critique, with financial uncertainty, money and work losses, and shriveled up remittances, curtailing disposable incomes, buyer sentiment and expenditure.

In sharp contrast, authorities remaining usage expenditure recorded a five-quarter higher expansion of sixteen.4 per cent in the April – June 2021 quarter, blocking an even deeper plunge in the general GDP. Excluding Authorities usage paying out, stability GDP contracted by just about thirty per cent in throughout the April – June 2021 quarter, highlighting the extent of the distress throughout the Covid-19 disaster.

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With Covid-19 infections continuing to climb, in particular outside the main urban centres, and some states extending local lockdowns additional, the financial outlook stays fraught with uncertainty. We be expecting usage developments to stay altered by the pandemic, with non-discretionary and in-house usage currently being prioritised at the expense of discretionary products and providers, in particular exactly where social distancing is complicated to maintain. A broad-centered decide on up in investment activity is likely to be back-finished to at minimum H2 FY2022. Additionally, the revenue shock currently being confronted by all amounts of authorities may perhaps constrain their skill to guidance the recovery.

We stay cautiously optimistic that the monsoon, reservoir and Kharif sowing predicament can guidance a 3-3.5 per cent agricultural development in FY2021. Irrespective, we continue on to be expecting regional and sectoral unevenness in the pace of recovery of the non-agricultural sectors likely forward.

Our assessment is that Indian GDP (at consistent 2011-twelve charges) will de-expand in both Q2 FY2021 and Q3 FY2021, whilst the pace of the contraction may perhaps narrow. We are cautiously hopeful that the financial state may perhaps be ready to eke out a marginal development in This autumn FY2021, benefitting from the foundation influence similar to the very last fiscal, whilst this stays contingent on how shortly the Covid-19 infections can be brought under regulate. As of now, we maintain our forecast that the Indian financial state will deal by a sobering 9.5 per cent in FY2021.

Aditi Nayar is Principal Economist at ICRA. Views are her have.