COVID-hit Indian economy to contract 7.7% in 2020-21: Govt estimates

COVID-hit Indian economy to contract 7.7% in 2020-21: Govt estimates

Called the "first advance estimates", the data released by the National Statistical Office (NSO) is not a surprise - especially given that a similar estimate of -7.5% has been put out by the Reserve Bank of India - but nevertheless indicates that the Indian economy is projected to contract for the first time in almost 40 years as a result of the COVID-19 lockdown.

As per the first advanced estimates of the national income released by the National Statistical Office (NSO) on Thursday, there was contraction in nearly all sectors with the exception of agriculture.

According to the ministry, the growth in nominal GDP during 2020-21 is estimated at minus 4.2 percent.

In terms of sectors, the estimates showed that GVA at basic prices by economic activity at 2011-12 prices showed a contraction in trade, hotels, transport, communication and services related to broadcasting; financial, real estate and professional services; and public administration, defence and other services at (-) 21.4 per cent, (-) 0.8 per cent and (-) 3.7 per cent, respectively.

The growth in nominal GDP during 2020-21 is estimated at (-) 4.2 per cent.

The tax revenue collection was 42.1 per cent of BE of 2020-21, compared to 45.5 per cent of BE (2019-20) during the corresponding period a year ago.

The fiscal deficit had breached the Budget target in July itself as the economy faced the most stringent lockdown in the first quarter to contain the outbreak of the coronavirus pandemic.

The government will now project its revised estimates for this fiscal and the budget estimates for the new financial year, on a sharply lower nominal GDP number. However, it recovered in the second quarter but contracted 7.5 per cent.

The central government may have to incur a larger fiscal deficit than what was earlier announced at Rs 12 lakh crore, said D K Srivastava, chief policy advisor, EY India. "Due to the COVID pandemic India will witness a negative GDP growth rate for the first time after 1979-80". "The relatively more manageable pandemic situation in the country as compared to advanced nations has further added momentum to the economic recovery", the ministry added. In the manufacturing sector, electricity sector is estimated to register a positive growth of 2.7%.

Stating that there has been a marked improvement in business conditions across the manufacturing sector, it said factory orders increased during December on the back of the loosening of COVID-19 restrictions, strengthening demand and improved market conditions. In this context, the revenue deficit is likely to be 100% higher than the budget estimate.

The rating agency, therefore, expects GDP growth to turn positive in the fourth quarter of FY21 and FY22 GDP expansion to come in at 9.6 percent. The bank added that growth in Pakistan will be slow even in 2020-'21 because of continued fiscal consolidation pressures and service sector weakness.