NEW DELHI: The contraction of the Indian economy in the June quarter could be one of the worst among the G20 countries, weighed down by the coronavirus pandemic and the most severe lockdown that led to the disruption of business activities and a strong drop in consumption. demand.
The National Statistical Office (NSO) is to release GDP data for the April-June period of fiscal year 21 on Monday, which is expected to be the worst impression since India began reporting quarterly data in 1996.
So far, the UK economy has seen the biggest drop in GDP for the June quarter of the world’s top 20 economies, dropping 21.7% year-on-year, its deepest recession on record.
India’s nationwide lockdown began on March 25 and continued until the end of May, after which mobility restrictions were gradually lifted from June 1. While April and May are considered losses for most companies, stifled demand boosted consumption somewhat in June, albeit well below pre-covid levels.
Abheek Barua, chief economist at HDFC Bank, said he expects GDP growth to contract 21% in the June quarter compared to 3.1% growth in the March quarter. “Manufacturing is likely to witness the sharpest slowdown, followed by services based on high-frequency indicators. On the other hand, the only support for growth is likely to come from the agricultural sector which was relatively insulated from the impact of the virus. that the GDP contraction would be close to 25%, if we exclude agricultural activity in the first quarter of fiscal year 2021, “he said.
However, the State Bank of India, in a published report, said last week that the June quarter GDP impression could positively surprise the market due to better-than-expected corporate performance. “In principle, the decline in revenues of listed companies has been far outweighed by cost rationalization, thus not affecting margins. According to our estimates, the decline in real GDP in the first quarter of Fiscal year 21 would now be around -16.5%, “he added.
High-frequency indicators such as the Industrial Production Index (IIP), the manufacturing PMI, automobile sales, among others, contracted sharply during the June quarter. The IIP contracted an average of 36% during April-June, while commercial vehicle sales contracted 84.8% during the same quarter.
The only bright side in the data could be the performance of the agricultural sector, which is expected to register 3-4% growth. A favorable monsoon, increased availability of water in reservoirs for irrigation, strong kharif planting, large purchases of food grains and strong rabi production are likely to contribute to agricultural growth.
However, the lack of data could spoil the credibility of the GDP figures. NSO did not officially release the factory’s production figures for April and May, citing data problems as most industrial establishments were not operating in these two months due to preventive lockdown measures.
Pranjul Bhandari, HSBC’s chief economist for India, has advised caution when interpreting GDP data for the June quarter, as the absence of informal sector data in the initial NSO estimate could result in an overestimation.
“We believe the pandemic is likely to have hit the informal sector more acutely as it comprises smaller companies with limited economic reserves to withstand shocks. And if the data from the formal sector is taken to represent informal activity at that time “GDP may potentially be overestimated. The statistics office could announce a 17.5% GDP contraction, which could later be revised to a 25% contraction when the informal sector survey is available,” added Bhandari.
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