India’s first quarter GDP shrunk to a level unknown in our economic history. At 23.9%, it’s the sharpest contraction since 1996 when we began bean-counting quarterly data and probably the worst since 1980s.
Assuming a 5-6% trendline growth, the effective output loss in Q1 is upwards Rs 10 lakh crore. That’s the national output lost, perhaps, forever, as Covid-19 cut the economy fiercer than a Samurai blade.
In absolute numbers, total output punched in at Rs 26.9 lakh crore, down from Rs 35 lakh crore last year. Worrying, nominal GDP — widely used in government estimates — contracted 20.6% or from Rs 44.8 lakh crore to Rs 35.6 lakh crore.
Just as misfortune conspires with bad luck during crises, several key metrics pounded each other into the ground leaving Asia’s third-largest economy in a quicksand with both demand and supply side contraction standing witness.
On the supply side, all but agriculture saw a de-growth with some like construction, manufacturing and services contracting indecently at 40-50%.
Demand side too mirrored this with investments shrinking 47%, while consumer spending saw a negative growth of 27%. Like in the past, government expenditure saved the day with 16.4% growth, but that’s an impolite increase given the pandemic and the sovereign’s role of riding to everyone’s rescue.
That said, excluding government spending, GDP would have contracted even worse by 30%. So that’s some solace.
In essence, just two life-sustaining arteries — agriculture and government spending —pumped our economy.
As if that’s not disappointing, fiscal deficit data released separately showed that the government continued to pinch both revenue and capital spending. Whether this was anticipating lower tax receipts or fearing deficit scolds is unclear.
Almost every country is emptying its public purse to fight the pandemic-led downturn, but India’s fiscal deficit in July stood lower than June, reflecting overt caution against a debt binge.
Meanwhile, economists believe the latest data betrays the inferno inside as they expect revisions to toss shocking de-growth grenades later. Policy watcher Anil Sood offered some proof.
Take inventory, which should have seen depletion because production was shut for two months. Instead, it recorded a quarterly increase similar to last year at Rs 53,000 crore.
Ditto consumption spending, which Sood thinks could be sharper than what’s captured in Monday’s provisional estimates.
Interestingly, valuables — including high value purchases — saw an unmistakable decline indicating spending curbs not just by lower income households, but also by India’s burgeoisie and the super rich.
Moreover, given the unglamorous state of core sector data, chances are we are in a recession right now, though the official word will be out in November.
In nearly seven decades, we’ve seen only four years of negative growth, but economic pundits are entering heavy discussions not about recession, but when the worst will be behind us, so recovery can begin.
Chief economic adviser K V Subramanian signalled that India was experiencing a V-shaped recovery with high frequency indicators like rail freight and power consumption showing promise.
But even with some improvements in next three quarters, several believe the rate of FY21 contraction could be beyond -5%.
The choice for the government will be whether consumption or investment side needs to be pushed. Given the limited fiscal space economists believe a demand or consumption-led recovery is crucial for the economy, but that requires government measure to arrest job losses and increase disposable incomes.
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