On Friday, the 29th of May, the National Statistical Organisation, Ministry of Statistics and Programme Implementation, released the provisional estimates of Annual National Income for 2019-20 as well as the estimates of GDP for Quarter 4 (Q4) of FY 2020. India’s GDP growth fell to 3.1% in the January-March Quarter of 2020. Though the figures reported beat the general expectation of a greater slump, there is nothing much to cheer about as all major sectors of the economy registered decline in growth.
The growth numbers indicate the devastating impact that COVID 19 has had in the economy. As per Central Statistics Office (CSO), the GDP figure is the lowest since the last 44 quarters. Overall, for FY 2020, the economic growth dived to 4.2% as against 6.15% in FY 2019. This is the lowest since 2009 global financial crisis.

Source: Bloomberg Quint

Further, the Government has also revised data for previous quarters downwards. As per the revised figures, the GDP for Q1 FY2020 is 5.2%, Q2 FY 2020 is 4.4% and Q3 FY 2020 is 4.1%

Mini Facts:
GDP – Total value of all final goods and Services produced in a country, within its boundaries during a certain period of time.

The downward revision of GDP figures even during the pre lockdown period is a matter of concern. It could be a possible pointer to the fact that the economy was already weak and COVID 19 has hit an already downward moving economy, which would further make the impact of the pandemic more pronounced.

How major sectors fared:

Most of the major segments of the economy has shown a downward trend with growth figures slumping to new lows. The growth in manufacturing sector was 1.4% for Q4 2020. However, the overall growth rate for the segment for entire FY 2020 was 0%. Construction segment contracted by 2.2% for the fourth quarter. Hospitality sector was one of the worst hit as the pandemic set in. The segment consisting of trade, hotel, transport and communication grew 2.6% for Q42020. The financial sector grew 2.4% for the last quarter of FY 2020. Agriculture and Mining are the only two segments which bucked the trend and provided some relief figures for a downward spiralling economy. Agriculture, in the backdrop of a strong rabi harvest season, grew at 5.9% in Q4 of FY 2020 compared to 3.6% in Q3. For the entire year, the growth in the segment was 4% as against 2.4% in the previous fiscal. The mining sector grew at 5.2% in Q4 compared to 2.2% in Q3 of FY20. Exports grew a little more than 3% for the entire fiscal.
The core sector output has also drastically shrunk by 38%. These 8 core sectors constitute 40% of weight of items in the Index of Industrial Production. This suggests a bleak outlook for the future.

Mini Facts:
The eight core sectors of the Economy are:

  1. Coal
  2. Crude Oil
  3. Natural Gas
  4. Petroleum Refinery Products
  5. Fertilizer
  6. Cement
  7. Steel
  8. Electricity Generation
    All these sectors constitute 40.27% of Index of Industrial Production (IIP). IIP is an index which shows growth rate of different industry segments of the economy for a given period of time.

If we consider the expenditure side, Government expenditure remained the major growth driver with a growth of 13.6% in Q4 FY2020, while Private Consumption and Investment fell. Private Consumption slowed down to 5.3% for the entire fiscal as against 7.2% for FY 2019. Gross Fixed Capital Formation grew only 2.8% for FY 2020 which is an indicator of low investment. These figures are also an indicator of an increased sentiments against spending during the pandemic time which has had a drastic impact on the demand side of the economy.

What this means and what lies ahead:

The National Statistical Office while releasing these estimates has explicitly mentioned that the data available for arriving at the GDP figures was inadequate and hence there are chances for further revision. The lockdown put in place and the consequent shut down of many units and extension of statutory time frame for submitting requisite financial returns have been cited as the reason. Hence, it is very much possible that a revised figure might paint a grimmer picture of economic growth.

However, even if we consider the current figures, it can very well be expected that what we witness now might be just the tip of the iceberg. The Q4FY2020, which is the period from Jan-March, was the time when the lockdown had just begun. Hence, the full and painful impact of the lockdown might present itself in Q1 of FY 2021. 40% of India’s GDP in contributed by states and zones which are currently identified as red zones by the Government. The State of Maharashtra, which is a major contributor to the economy and worst COVID affected State in the country, has crossed 60,000 confirmed Corona Cases which points to a possibility of lockdown 5. This would further aggravate supply side disruptions and labour shortage making it difficult for the economy to be back on track with ease.

Though the Government had announced a Rs.20 Lakh crore stimulus package to lift up the economy, the benefits of the same, mostly in the supply side, would be visible probably only in the medium to long term period in future, provided it is effectively implemented. Even though RBI proactively supported the Government efforts by policy rate cuts, it has not generated much enthusiasm among banks to actually start lending credit to the needy business. Mounting pressure of NPA still keeps the banks risk averse. This might hamper the effective implementation of the stimulus package, which is leaning heavily on banks for implementation. Hence, the need of the hour now seems to be measures to improve the demand side of the economy by measures which would directly pump money into the economy.

Every dark cloud will have a silver lining. Post COVID, new business leaders are likely to emerge. There are sectors in the economy which are poised to fare well in the pandemic period, which might play a significant role in pulling the economy back to its feet. The outlook for agricultural segment remains positive with the growth exhibited by the segment and the expectations of good monsoons and record food grain production. Segments like FMCG, Education, E-Retailers, Insurance, Pharma and Banking/NBFC segment might most likely turn out to be performing segments of the economy during and post COVID times.

The times we live in right now are unprecedented. Even as we look out to sectors who could hold the fort for the economy during these difficult times, India will have to prepare for the upcoming recession that has already began to set in. The tunnel seems dark and long, but there is always light at the end of the tunnel. It’s just a matter of time till we reach there!