NEW DELHI : India’s economy contracted by a historic 23.9% in the June quarter, earning the nation the grim distinction of the fastest-shrinking major economy, a downward spiral that has been triggered by the coronavirus crisis.
The GDP data highlighted the extent of the economic damage inflicted by the pandemic and the ensuing lockdown to stem the spread of the virus.
A recovery seen in the weeks after India lifted most restrictions on economic activity is also showing signs of stagnation, as the country has become the world’s fastest growing region in terms of new virus infections. , reporting 78,512 cases on Monday. Infrastructure production continued to contract in July, indicating that the reactivation will be slow and will depend on how soon the infection rate is brought under control.
Data released by the National Statistical Office on Monday showed that the manufacturing, construction and commerce sectors experienced a massive contraction of 39.3%, 50.3% and 47%, respectively. Public spending, represented by public administration, defense and other services, contracted by 10.3%, although public spending on final consumption grew by 16.4% during the quarter. On the demand side, both private consumption and investment contracted by 26.7% and 16.3%, respectively.
K. Subramanian, the chief economic adviser to the Ministry of Finance, said the economic performance was mainly due to an exogenous shock that has been felt globally. “The important thing is that India is experiencing a V-shaped recovery after the Unlocking was announced. We should expect better performance in the following quarters, “he added.
However, former Finance Minister P. Chidambaram said in a statement that the GDP estimates did not surprise him even though the government was seeing “green shoots” on several days during the first quarter. Let me say with regret: It will be many months before the economy turns around and registers positive growth. The government’s inaction and ineptitude do not give us hope that we will see the light at the end of the tunnel anytime soon, “he added.
As expected, the only positive side was the performance of the agricultural sector, which grew 3.4% in the June quarter. Above normal monsoon rains, increased availability of water in reservoirs for irrigation, robust planting of kharif, large purchases of food grains, and robust rabi production appear to have provided support for the growth of agriculture.
Data released separately by the industry department showed that output in eight infrastructure sectors shrank 9.6% in July from a 12.9% contraction in June. Except for fertilizer production, which continued to grow for the third month in a row in July, production in all other sectors covered by the index contracted.
Most economists now expect a contraction in GDP in the four quarters of the current fiscal year. They expect the economy to contract between 5% and 9.5% in fiscal year 21, the worst contraction since India gained independence.
Demands for a new fiscal stimulus by the government have gained ground. The first set of economic measures announced by the government so far has relied heavily on liquidity support and government guarantee measures. Worrisomely low revenue collection with little fiscal space to squander has prevented the government from further expanding its fiscal support program.
DK Srivastava, EY India Senior Policy Adviser, said the economy has clearly landed in a severe vicious cycle with the need to stimulate demand becoming paramount even as the government’s ability to support demand is weaker. “Without stimulating private consumption and investment demand, it can be difficult to stop this downward momentum,” he added.
Data released by the Comptroller General of Accounts on Monday showed that the government missed its full-year fiscal deficit target for fiscal year 21 at 103% in July from 77.8% a year ago as it kept pace. spending at last year’s level amid revenue shortfall. . While the Finance Ministry has shelved indications of more fiscal measures, including through deficit financing, it has yet to reveal the extent of the support and when it plans to do so.
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