Updated: August 31, 2020 6:56:37 am
According to the Center for Monitoring the Indian Economy (CMIE), salaried jobs suffered the greatest impact during the shutdown, with a total loss estimated at 18.9 million during April-July.
The Gross Domestic Product (GDP) from April to June will mark India’s entry into a recessionary phase; With two consecutive quarters of GDP contraction, the trend is expected to continue also in the July-September quarter.
With economic activity severely disrupted in the first two months of this fiscal year, hard hit by a series of localized lockdowns and growing Covid-19 cases, the contraction of GDP for the first quarter is being set at an average of 20 percent. by economists, with that of -the growth range is between 15.2% and 25.5%.
The National Statistical Office (NSO) will release April-June data on Monday, which is expected to be the worst since India began reporting quarterly data in 1996. The UK economy has seen the biggest drop in GDP. of the June quarter among the 20 main world economies. with an annual growth contraction of 21.7 percent, the deepest recession on record.
Experts, however, caution that the figures are unlikely to capture the real scope of the economic crisis, given that the small-scale sector and the informal sector are hit harder than the organized sector. This distress will not be reflected in GDP figures, as industrial production figures are used to extrapolate trends in the informal sector.
Weak investment, capital spending, and consumer demand have affected the manufacturing, construction, tourism and transportation sectors, even as agricultural growth is estimated at around 3-4% in the April-June quarter.
ExplainSpeaking | What to look for in GDP data
The recovery in the second quarter has also not picked up as expected with several states announcing closings in July and August. The looming defaults, after the moratorium ends, add to the problems in the banking sector, which could further restrict lending.
On top of this, there are concerns about household debt with stagnant incomes, wage cuts and job losses across the board.
According to the Center for Monitoring the Indian Economy (CMIE), salaried jobs were hit the hardest during the shutdown, with a total loss estimated at 18.9 million during April-July.
A consumer boom It is ruled out given the growing household debt and the reluctance of banks to lend. Former India chief statistician Pronab Sen estimated the growth decline for April-June at around (-) 20 percent, adding that even this does not capture the true depth of the pandemic’s impact on the sector of MSMEs and agricultural income.
Furthermore, in a trend reminiscent of demonetization, companies have fared better than MSMEs, which are in a much worse situation which, along with a weakness in farm income, is also expected to further affect the economy. demand in the next year, he added.
Barclays has projected that the economy will contract 25.5 percent in April-June; ICRA’s estimate is 25 percent; HDFC Bank has set it at 21 percent. State Bank of India has projected a contraction of 16.5 percent, while India Ratings has set it at 17.03 percent. Nomura has set its estimate at 15.2 percent, while DBS expects a 16.6 percent contraction.
Radhika Rao, Economist, DBS said: “The first quarter was the hardest hit by the strict lockdown in response to the pandemic, beyond which the authorities weighed the balance between the economic costs of extending the lockdown or prioritizing health. This led to a gradual and progressive reopening at a varied rate in different states / districts.
While the first quarter data looks back, it was probably the lowest point of the bear cycle, and a less deep contraction is expected over the next two quarters. For the way forward, the sustainability of the recovery cycle depends on when the epidemic curve successfully flattens. “
Although rural demand is expected to support economic recovery, it cannot substitute for urban demand, India Ratings said in a note. “The business disruptions caused by COVID-19 during the end of March-May 2020 have been so serious for the production, supply / trade channels and activities, especially in sectors such as aviation, tourism, hotels and hospitality that Fiscal Year 21 GDP growth is expected to contract for the first time since FY’80. Although non-farm economic activities are slowly retreating, they are still much lower than the pre-COVID-19 level, ”he said.
The government’s stretched fiscal position means that its ability to spend is compromised. The states, which represent a cumulative spending roughly one and a half times more than the central government, are also facing financial strains amid moderate economic activity and an estimated compensation deficit of Rs 2.35 crore lakh under GST. Overleveraged corporate balance sheets mean that private investment will continue to decline. Last year’s corporate tax cut was largely futile as companies used it to reduce debt and accumulate cash balances, the Reserve Bank of India said in its 2019-20 Annual Report.
The RBI refrained from giving an estimate of GDP, but said that the assessment of aggregate demand during the year so far suggests that “the the impact on consumption is severe, and it will take a long time to repair and regain the pre-COVID-19 momentum. “
Explained: landmark for the road ahead
Monday’s data is critical because it will provide the first benchmark on the state of the economy after the pandemic and the series of lockdowns. RBI, GST meeting, McKinsey report on jobs all point to severe challenges. When the pandemic curve begins to flatten, it will be key to recovery as well.
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