Home Economy Indian economy to contract by 7.7% in 2020-21, its worst ever decline,...

Indian economy to contract by 7.7% in 2020-21, its worst ever decline, NSO estimates

Construction, manufacturing, mining & services industry like hotels and transportation are to be the worst hit, says first advance GDP estimate released by the National Statistical Office.

A vendor hands Indian rupee notes to a customer at a stall in Chauta Bazaar in Surat, Gujarat (representational image) | Photo: Karen Dias | Bloomberg
A vendor hands Indian rupee notes to a customer at a stall in Chauta Bazaar in Surat, Gujarat (representational image) | Photo: Karen Dias | Bloomberg

New Delhi: The Indian economy is estimated to report its worst-ever contraction of 7.7 per cent in 2020-21, the National Statistical Office (NSO) said Thursday.

The Indian economy had grown at 4.2 per cent in 2019-20.

The first advance estimates released by the NSO are, however, marginally better than initial estimates released in the first half of the fiscal year when many financial institutions and rating agencies had forecast a double digit contraction for the Indian economy. 

In December, the Reserve Bank of India had also marginally improved its growth forecasts for India raising it to -7.5 per cent from its earlier forecast of -9.5 per cent. 

While agriculture is forecast to grow at 3.4 per cent in 2020-21, manufacturing and mining and quarrying are expected to contract by 9.4 per cent and 12.4 per cent, respectively. 

Trade, hotels, transportation and communication are expected to see the sharpest contraction at 21.4 per cent, followed by construction, which is estimated to decline by 12.6 per cent. 

Nominal GDP is forecast to contract by 4.2 per cent to Rs 194.82 lakh crore. Nominal GDP includes the price increases along with real output growth. 

These forecasts are released ahead of the budget so as to aid the government’s budget-making exercise. The nominal GDP numbers are crucial for the government to assess its fiscal deficit as a percentage of Gross Domestic Product as well as to make projections of tax collections for the next fiscal year. 

Graph by Ramandeep Kaur | ThePrint

Meanwhile, a finance ministry statement said the GDP estimates reflect a resurgence in the economic activity in Q3 and Q4.

“The continuous quarter-on-quarter growth endorses the strength of economic fundamentals of the country to sustain a post-lockdown V-shaped recovery,” the statement added.

Also read: Why Indian economy seems set for revival in the new year after a tough 2020

Exports, imports also expected to contract

The current fiscal has been a challenging year for the Indian economy as the pandemic and the subsequent lockdown brought all economic activity to a complete halt for two months. 

Even after the gradual lifting of lockdown, the services sector, requiring physical customer presence like tourism, hospitality and aviation, is still struggling to inch back to pre-Covid levels.

The agriculture sector has been the only silver lining this fiscal year with the manufacturing sector also registering a partial recovery in the second half of the fiscal year anticipating festival season demand. 

While the Indian economy contracted by a record 23.9 per cent in the April-June quarter, the decline was arrested in the July to September quarter when the economy contracted by 7.5 per cent. 

Data released by the NSO showed that both private consumption expenditure and gross fixed capital formation are expected to decline in 2020-21 by 5.6 per cent and 13.6 per cent, respectively, and only government final consumption expenditure is expected to register positive growth at 11.4 per cent. 

Gross fixed capital formation is an indicator of the investment demand in the economy and has been one of the worst hit along with private consumption. 

Exports and imports are also expected to contract in the current fiscal, the data showed. 

Also read: Indian economy likely to contract by 8-11% in Q2, to enter ‘technical recession’