New Delhi: India may see a real GDP (gross domestic product) contraction of 7.7% for the 2020-21 financial year, according to new data released by the government on Thursday evening.
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 nearly 40 years as a result of the COVID-19 lockdown.
GVA or ‘gross value added’, which strips out indirect taxes and subsidies, is expected to show a contraction of 7.2%.
“Real GVA at basic prices is estimated at Rs 123.39 lakh crore in 2020-21, as against Rs 133.01 lakh crore in 2019-20, showing a contraction of 7.2%,” the NSO press release noted.
“The growth in nominal GDP during 2020-21 is estimated at -4.2,” the release added.
While the GDP projection for FY’21 will be revised in the ‘second advance estimates’, the first advance estimates released on Thursday are important as they serve as a broad blueprint for finance minister Nirmala Sitharaman and her team as they prepare to work out the fiscal math for the upcoming Union Budget.
Data released by the statistics ministry shows that so far, GDP contracted by nearly 24% in the first quarter of this financial year (Q1) and by 7.5% in Q2.
However, in the last three months, economic activity has quickly recovered, with several high-frequency economic indicators flashing green. In December 2020, goods and services tax (GST) collections showed an unexpected year-on-year growth of 11.6% to Rs 1.15 lakh crore.
While the RBI has projected the GDP slump for FY’21 at 7.5%, as noted above, the World Bank has a dimmer view and sees the economy shrinking by 9.6%.
In its recent ‘Global Economic Prospects’ report, the institution noted that India’s informal sector had seen severe income loss during the pandemic.
“In India, the pandemic hit the economy at a time when growth was already decelerating. The output is estimated to contract by 9.6% in fiscal year 2020-21, reflecting a sharp drop in household spending and private investment,” it said.