NEW DELHI: GDP data for the June quarter of fiscal year 21 to be released tonight would reveal the extent of the damage that the coronavirus pandemic has caused to the Indian economy. While India’s economy had slowed long before the pandemic hit, Asia’s third-largest economy is expected to enter a recession in fiscal year 21 for the first time in 40 years.
Here’s a look at five things to look for in upcoming GDP data:
- Main GDP impression
While there is consensus that GDP will contract in the June quarter, there is wide variation among forecasters on the degree of contraction the Indian economy went through due to the world’s tightest lockdown. While Nomura projects that GDP will contract 15.2%, Barclays has estimated that the economy will plummet 25.5% during the first three months of the current financial year.
2. Manufacturing crash
The manufacturing sector is expected to have been the hardest hit during the first three months of the financial year with the nationwide shutdown that forced factories to close due to unavailability of workers. Broken supply chains further persisted in the problem even in June, when the center gradually removed restrictions on mobility. While the Industrial Production Index (IIP) contracted 36% in the June quarter, manufacturing GDP, which measures value added, may also experience a massive contraction.
3. Double shock
The coronavirus unleashed a double shock to the economy from both the supply and demand sides. Capital goods, which represent the demand for investment in the economy, contracted for the eighteenth consecutive month in June. This could be reflected in the Gross Fixed Capital Formation that represents investment activity in the GDP data for the June quarter, which has been contracting for the previous three quarters. Private consumer demand, which has remained positive through the March quarter, may see a massive drop in the June quarter as pandemic-induced mobility restrictions forced consumers to stay home, while Loss of income forced consumers to reduce their discretionary spending.
4. Agriculture, the positive point
The agriculture sector is seen as the only ray of light in GDP figures that can register positive growth with strong rabi production and acreage sown in the current Kharif season, which is showing positive growth thanks to to the good monsoon rains from the southwest. However, the agricultural sector, with a contribution of only 18% to GDP, is unlikely to recover from a deeper contraction in the industrial and service sectors.
5. Government support
Despite the massive drop in revenue collection, the center kept pace with its public spending during the June quarter by increasing its borrowing program. Total spending during the April-June period was marginally higher (26.8%) than the same period of the previous year (25.9%) after the announcement of the Garib Kalyan Yojna through which the government provided support to vulnerable sectors of the society. This may provide some support to the GDP figures and “Public Administration, Defense and Other Services” is expected to show positive growth.
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