Manufacturing expanded by a statistically insignificant 0.03 per cent in 2019-20 compared to 5.7 per cent in the previous fiscal Amid a recessionary outlook for the current fiscal year, economic growth fell to 3.1 per cent — a low not seen in more than 17 years — in the fourth quarter of 2019-20, with private investment and manufacturing hit hard even as there was the Covid-19 lockdown
for only few days in March.
This pulled down gross domestic product (GDP) growth to an 11-year low of 4.2 per cent in 2019-20. This was lower than the government projection of 5 per cent in both first and second advance estimates.
Growth had stood at 6.1 per cent in the previous year. Growth in the January-March quarter slumped against the National Statistical Organisation’s (NSO’s) advance estimate of 4.7 per cent. It came down because of a contraction in the manufacturing and construction sectors.
China, with which India is in competition to be the fastest-growing large economy, saw its economy shrinking by 6.8 per cent in January-March 2020.
However, if the entire 2019 is taken into account, the Chinese economy grew 6.1 per cent.
Former chief statistician Pronab Sen has projected a 10.8 per cent contraction in GDP in the current financial year if no more stimulus is given.
He expects a decline in GDP in the first three quarters with a slight recovery in Q4.
Aditi Nayar, principal economist, ICRA Ratings, said the further extension of the lockdown, though with graded relaxations, and the expectation of substantial delays in getting the full supply chain operational would further dampen economic activity.
“We expect Indian GDP (at constant 2011-12 prices) to contract by 25.0 per cent and 2.1 per cent, respectively, in Q1 FY21 and Q2 FY21, which implies that a recession is underway. Subsequently, we anticipate muted GDP growth of 2.1 per cent and 5.0 per cent, respectively, in Q3 FY21 and Q4 FY21, which still entails a full year contraction of 5.0 per cent in FY21,” said Nayar.
Manufacturing contracted 1.4 per cent in Q4 against a 0.8 per cent fall in Q3.
It was the third straight quarter of decline in manufacturing gross value added. It expanded by a statistically insignificant 0.03 per cent in 2019-20 compared with 5.7 per cent in the previous fiscal year.
Agriculture was the only bright spot in the GDP data. It grew by 5.9 per cent in Q4 against 3.6 per cent in Q3. For a year as a whole, it grew by 4 per cent against 2.4 per cent a year ago. Construction saw a contraction of 2.2 per cent in the fourth quarter against fall of 0.04 per cent in Q3. For FY20, the growth rate here fell to 1.3 cent from 6.1 per cent in the previous year. The current quarter would see the impact of lockdown
and in the next one the monsoon will dampen construction further.
Hit hard by the crisis in non-banking financial companies, growth in the biggest segment of the Indian economy
— financial services, real estate, and others — declined to 2.4 per cent in the fourth quarter against 3.3 per cent in the previous quarter. Growth in this sector moved down to 4.6 per cent in FY20 against 6.8 per cent a year ago. Another services area — trade, hotels, communication and transport — was dampened primarily by the hospitality segment.
The segment saw growth coming down to 2.6 per cent in Q4 against 4.3 per cent in the third quarter. The growth rate in the segment more than halved to 3.6 per cent in FY20 against 7.7 per cent a year ago.
Investment, seen from gross fixed capital formation (GFCF), declined for the third straight quarter by 6.4 per cent in Q4. It contracted 2.8 per cent in 2019-20, in contrast to a 9.8 per cent expansion in the previous fiscal year. The share of investment in GDP fell to 26.9 per cent in FY20 from 27.5 per cent, given in the government’s second advance estimates.
The government had last year cut the corporation tax rate to 25 per cent to promote private investment. However, not many availed of the option because they would have had to forgo their minimum alternate tax credits.
It is government spending that appears to have kept the economy afloat, with government final consumption expenditure growing by 13.6 per cent in the fourth quarter, almost at the same rate of 13.4 per cent in Q3. It rose by 11.8 per cent in 2019-20 as against 10.1 per cent in the previous fiscal year. Domestic demand, denoted by the private final consumption expenditure, on the other hand grew by just 2.7 per cent in Q4 against 6.6 per cent in the previous quarter. It rose 5.3 per cent in FY20 against 7.4 per cent in the previous financial year.
The RBI last week said India’s GDP growth will be in negative territory in 2020-21. The Rs 20.97-trillion Covid-19 package does not appear enough to revive the economy with the fiscal impact of the additional stimulus only about 1 per cent of GDP against the claim of 10 per cent. The figures may be revised because the NSO said the data flow had been affected by the pandemic and lockdown.