India's GDP May Contract by 7.7% in FY21: Government

While the first advance estimates released on Thursday will be revised, they help the finance ministry in the budget-making process.

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.

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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.