Minus 23.9 per cent: In falling GDP, Agriculture output is only positive

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Image Source : INDIA TV With MINUS 23.9 per cent GDP, India has officially entered a phase of recessionary phase this year, data released by the National Statistical Office (NSO) on Monday showed.

India’s gross domestic product (GDP) shrank by 23.9 per cent in the June quarter, due to COVID-19 pandemic and the lockdown that followed. With MINUS 23.9 per cent GDP, India has officially entered a phase of recessionary phase this year, data released by the National Statistical Office (NSO) on Monday showed. The Covid-19 pandemic-induced economic turbulence along with measures to curb its outbreak, heavily dented India’s economy. It is the worst performance since quarterly measurement began in 1996 and probably the first contraction since 1980.

According to National Statistical Office (NSO), the GDP at ‘Constant (2011-12) Prices’ in Q1 of 2020-21 is estimated at Rs 26.90 lakh crore, as against Rs 35.35 lakh crore in Q1 of 2019-20, showing a decline of 23.9 per cent.
The Gross Domestic Product (GDP) had grown by 5.2 per cent in the corresponding quarter of FY2019-20. In the quarter just preceding Q1 FY21, the economic growth was at 3.1 per cent. The country had observed mobility restrictions as mandated under the lockdown measures for the better part of the first quarter of FY21.

Worst Fall Among Global Peers

France -19.0

India has so far reported over 36 lakh cases of the novel coronavirus and over 64,000 deaths, with reporting over 70,000 Covid-19 cases per day. Now, India is the third worst-hit country in the world, behind only the United States and Brazil. 
Restrictions in the manufacturing sector, transportation and the market have hit services and retail sales. Needless to say, millions of workers lost their jobs as the economy came to a standstill. Construction, manufacturing and trade, hotels and transport were worst-hit sectors, recording contractions of 50.3 per cent, 39.3 per cent and 47.0 per cent, respectively.

Agriculture only silver lining

However, amid the grim, one sector — Agriculture– emerged as the only saviour giving hope for future. Agriculture sector registered a 3.4 per cent GDP growth. Had it not been a robust performance in the Agri sector, India’s GDP would have tumbled further. 

 “Positive agricultural output is the only positive element in the GDP print,” says Nish Bhatt, Founder & CEO, Millwood Kane International.
 “As the April-June quarter saw the maximum period of the national lockdown the degrowth was severe, going forward as the government re-opens the economy in phases, government spending, and festive season spending is expected to help the growth rate to be in the positive territory going forward. While the RBI has done its part to help boost consumption and economy, a further rate cut may help boost credit offtake.”
 “The government may still have some more fire-power with further stimulus measures for specific sectors. Good monsoon, high Agri output will help with a pickup in rural consumption. Government spending, reforms, and more measures to boost consumption are required to bring back growth on track,” Bhatt says. 

Quarterly Estimates of GVA

IndustryApr-June (2019-20)Apr-June (2020-21)
Agriculture, forestry & fishing3.0%3.4%
Trade, hotel, transport, communication & services related to broadcasting3.5%-47.0%
Public administration, defence & other services7.7%-10.3 %
Gross Value Added (GVA)4.8%-22.8%
Gross Domestic Product (GDP)5.2%-23.9%
(at Basic Prices in Q1 (April-June) of 2020-21  

While Nikhil Gupta, Economist – Institutional Equities, Motilal Oswal Financial Services Ltd said: “India’s real GDP declined 23.8% YoY in Q1 FY21, the worst among major nations”.
Commenting on the declining GDP, Mr Gupta further explained; It is worse than the consensus of 18% fall, real GDP decline is a shocker. Of course, it is not comparable to anything in history and that’s why few surprises are highlighted below:
 * *Private consumption fell 27% (vs. our exp of -18%)
* *Total investments declined 47.5% (vs our exp of -30%)
* *Government consumption grew 16.4%, in line with our forecasts
* *Net exports posted the highest surplus in real terms (and third on record since FY96)
* *Nominal GDP declined 22.6% YoY last quarter, implying an output loss of INR15T (assuming 8% YoY growth in the pre-COVID scenario)
* *Real GVA declined 22.8% YoY, of which services were the biggest surprise. ‘Trade and transportation’ fell by almost half, and ‘public administration and defence’ (which includes govt spending and all else) shrank 10% last quarter.
* *GDP deflator grew 1.6%, more in line with the deflation in WPI, rather than CPI.”
“Going forward, it appears that Jul’20 was worse than Jun’20 and the initial data for Aug’20 is also not very encouraging. There would be another contraction in Q2FY21; however, what needs to be seen, and as we have always feared, the turnaround from late CY20 could be much slower than the general expectations,” he further added.

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