Lockdown effect: India's GDP to see contraction of 25% in Q1, say analysts

Topics GDP | GDP growth | Lockdown

It said the rural economy, government spending and essentials will likely be the only sectors mitigating some of the decline.
The country's gross domestic product (GDP) may have contracted by 25 per cent in the June quarter, which witnessed the strictest coronavirus-induced lockdowns, analysts said on Tuesday.

Manufacturing, construction, and trade, hotels, transport and communication will be the worst-affected segments in the official set of numbers to be announced by the government on August 31, they said.

A nationwide lockdown was imposed in the country on March 25, as the Covid-19 pandemic came ashore. While the impact to the economy has been the hardest, the number of those infected have continued to grow and the country has crossed a grim milestone after another on Covid-19.

Ratings agency ICRA said it is pegging the "contraction in Indian GDP and the gross value added (GVA) at basic prices in year-on-year (y-o-y) terms in Q1 FY21 at around 25 per cent each".

The drag is primarily on account of three key production sub-sectors accounting for 45 per cent of the economy manufacturing; construction; and trade, hotels, transport, communication and services related to broadcasting, it said.

"Our assessment draws from the available data for volumes and profitability for the industrial and services sectors, the expectation of distress in MSME and relatively informal sectors, as well as the favourable rabi harvest and government revenue spending," its principal economist Aditi Nayar said.
Foreign brokerage Barclays estimated the economy to have contracted by 25.5 per cent in the June 2020 quarter saying the virus containment measures have "dealt an unprecedented blow to the economy".

It said the rural economy, government spending and essentials will likely be the only sectors mitigating some of the decline.

The brokerage, however, said while the worst will be over in the June quarter, growth is likely to remain weak going forward as well, and estimated the 2020-21 GDP to contract by 6 per cent.

Manufacturing volumes are likely to contract 40.7 per cent year-on-year, the construction sector by gross value added growth 45 per cent, ICRA said.

It added that GVA for trade, hotels, transport, communication and services related to broadcasting in that quarter is expected to contract by over 50 per cent on a GVA basis.

The revenue expenditure of a small set of state governments for which data is available shows an expansion of 18.5 per cent in the first quarter of 2020-21, the rating agency said. It added that coupled with a 9.7 per cent growth in the Government of India's non-interest revenue expenditure in Q1FY21, this would support the overall economic performance in the quarter.

The agriculture sector will come at five per cent in the first quarter of 2020-21 as against the 3 per cent growth in the corresponding quarter of the previous financial year, Nayar said.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel