GDP forecasts for the June quarter range from contraction of 15 to 25.9 per cent, which is the worst performance since the country started reporting quarterly data in 1996, according to Bloomberg.
A State Bank of India report pegs the country’s GDP contraction at 16.5 per cent in the first quarter, while ratings firm Icra sees it at 25 per cent; it also expects GVA to contract by 25 per cent. A Reuters poll estimates the likely contraction at 18.3 per cent.
“Timely indicators show that the post-lockdown recovery is now stalling, underscoring the long and difficult road ahead for India’s economy,” Reuters quoted Shilan Shah, India economist at Capital Economics, Singapore, as saying. According to Shah, Covid-induced economic damage was much worse in India than any other country in Asia.
Estimating India’s growth rate has historically been a contentious process which may be fouled further due to Covid-19’s spread. With data collection becoming much harder amid lockdowns, the job of predicting GDP for this quarter has been very challenging and will likely run into inaccuracies. Yet the major economic hurdles that India faces point at weak growth, primary among them being the massive costs of damage inflicted by the novel coronavirus.
India recently recorded the world’s highest single-day increase in Covid-19 cases at around 80,000, and is third behind Brazil and US in the total virus case tally with over 36 lakh cases.
Reserve Bank of India (RBI) in its annual report said signs of revival seen in May and June have lost strength after lockdown re-impositions to contain further Covid outbreak. As a result, economic activity contraction may continue in the second quarter of the current fiscal. High frequency data too shows a retrenchment in economic activity that is unprecedented, according to the report. High-frequency indicators like purchasing managers’ surveys and fuel sales show growth dipping in July, pointing to weak business activity.
RBI made a case for deep-seated and wide-ranging reforms to get back on the path of sustainable growth in its annual report, but credit rating agencies appear concerned about India’s administrative and fiscal ability to implement large-scale support programmes, said Prachi Mishra, chief India economist, Goldman Sachs.
While India could get a boost in 2021 due to policy support and pent-up demand in advanced economies, she is of the view that there is no domestic fundamental force to drive the country’s GDP.
GVA numbers will give us a detailed estimate of sector-wise performance of the economy. Restraints amid the pandemic may curb normalization of demand for transport services, hospitality, recreation and cultural activities in particular, RBI says in the report.
Hopes of an economic recovery have been pinned on a strong rural revival. The agriculture sector has largely not been impacted during or after the lockdown and could become an engine for economic recovery, according to an India Ratings report. Yet rural demand cannot substitute for urban demand, it adds.
State expenditures may take a hit due to an unfavourable outcome of the GST council meet regarding compensation for revenue losses under the indirect tax regime. Cess collection has plummeted amid weak economic activities and GST collection in 2020-21 is unlikely to see enough growth to meet this shortfall owed to state governments.
Amid the constant economic threats that the Indian economy faces currently, the GDP number will outline the scale of actions needed in the coming months. India’s GDP growth for June quarter last year was 3.1 per cent, which was the worst performance in at least eight years.