New Delhi: Attributing the 23.9 per cent contraction in GDP in April-June to the coronavirus lockdown, Chief Economic Adviser K V Subramanian on Monday said the country will witness better performance in the subsequent quarters, aided by a 'V-shaped' recovery in various sectors.
He said indicators like rail freight traffic and electricity consumption are pointing to a recovery in economic activity.
"Given the intensity of the lockdown...higher intensity, this (growth number) is actually along expected lines. What is important is that India is experiencing a V-shaped recovery after the unlock has been announced,” he told PTI.
Citing some examples, he said railway freight traffic, which is often a good indicator of economic activity, has reached 95 per cent of the level seen in July last year and was 6 per cent higher in the first 26 days of August, compared to the same time last year.
Power consumption is just 1.9 per cent lower than last year, he said.
"E-way bills capture interstate trade, which do get affected by by local lockdowns and yet the e-way bills are at 99.8 per cent in August so far," he said.
Read more:GDP Data: Agriculture a relief, construction, trade, travel & hotels worst hit
Talking about the eight core infrastructure sectors, he said core sector output declined by 38 per cent in April, but since then the rate of contraction has come down to 22 per cent in May, 13 per cent in June and 9.6 per cent in July.
"Overall, there is clearly a V-shaped recovery. One noteworthy point is that agriculture sector is the one sector that has grown at 3.4 per cent despite the lockdown that was in Q1....(this) is reflective of the several reform measures that the government has announced, like the APMC reforms and Essential Commodities Act etc," he said.
This is also reflected in rural inflation now being higher than urban inflation, he added.
"This decline is expected given the lockdown globally that happened and India is definitely experiencing a V-shaped recovery. So, we should expect better performance in the subsequent quarters," Subramanian emphasised.
Comparing the contraction with the UK economy, the CEA said India's lockdown was more intense than that in the UK, which witnessed 22 per cent decline in the April-June quarter.
Quoting the World Economic Outlook by the International Monetary Fund, he said it has highlighted that GDP per capita would decrease the highest since 1870.
This is once in one-and-a-half century event, which is what India is going through as well, he said.
Deep contraction in GDP on expected line, recovery to be gradual, says industry
The industry on Monday said the steep 23.9 per cent contraction in the GDP in April-June was on expected lines reflecting the "stalling of economic activities" due to the lockdown imposed in response to coronavirus pandemic.
The industry, however, said it anticipates the economy to stage a gradual recovery in the coming quarters on account of reforms, the Rs 20 lakh crore stimulus package and measures taken by the Reserve Bank.
CII Director General Chandrajit Banerjee said the large contraction in the first quarter GDP print at 23.9 per cent was widely expected, and it reflects the wide-spread stalling of economic activities due to the stringent lockdown in response to the pandemic.
"Even as the first half of the current fiscal is expected to remain weak, we can expect a recovery in the second half led by supportive fiscal and monetary policies," Banerjee said.
In this context, he said, the localised lockdowns being imposed by state and district administrations may be avoided so that the economic recovery can be kept on track.
"Going forward, we are anticipating contractions -though a bit better in numbers- in the July- September quarter and the October- December quarter as well. However, in the quarters post that, we anticipate some amount of recovery to take place," Assocham President Niranjan Hiranandani said.
The country would witness even a recovered growth curve in the quarters after that due to a series of measures, he stated.
“The Rs 20 lakh crore stimulus package, the measures taken by the Reserve Bank of India and the administrative reforms would show a positive outcome in the economy,” he said.
GDP to decline by 10 per cent in FY21
After the country's economy contracted by a record 23.9 per cent in April-June quarter, real GDP for FY21 is expected to shrink by 10.9 per cent, according to State Bank of India's research report - Ecowrap.
It had earlier estimated real gross domestic product (GDP) at (-) 6.8 per cent for the current fiscal.
The first quarter GDP contraction compares with 3.1 per cent growth in the preceding January-March quarter and 5.2 per cent expansion in the same period a year back.
“Our preliminary estimate indicates that all the four quarters of FY21 will exhibit negative real GDP growth, and decline of full year growth will likely be in double digits (around 10.9 per cent),” the research report stated.
It estimates Q2 real GDP decline in the range of (-) 12 per cent to (-) 15 per cent, while Q3 GDP is seen between (-) 5 per cent and (-) 10 per cent. Q4 is expected to be in (-) 2 per cent to (-) 5 per cent range.
The report said the country's GDP growth plunged to 23.9 per cent in Q1 FY21 due to the nationwide lockdown imposed on March 25, 2020, in the wake of the COVID-19 pandemic and is much worse than market and its estimates.
As anticipated private final consumption expenditure (PFCE) growth collapsed as COVID-19 containment measures reduced consumption to mostly essential items, it said.
With investment demand not seeing recovery due to unutilised capacity, the share of private consumption expenditure will remain on the higher side in overall GDP estimate, it noted.
“Assuming that it remains at 57 per cent of GDP in nominal terms, we will see at least around 14 per cent decline in PFCE growth in FY21, as against an average of 12 per cent growth for the nine-year period ended FY20,” the report said.
Icra's Principal Economist Aditi Nayar said, "As expected, GDP (Gross Domestic Product) and GVA (Gross Value Added) plunged precipitously in the lockdown-ridden quarter of Q1 FY2021, both printing similar to our forecast of a 25 per cent contraction. Moreover, incoming data on the MSME and less formal sectors could manifest in a deeper contraction when revised data is released subsequently."
"With infections continuing to climb and some states extending local lockdowns further, we maintain our forecast that the Indian economy will contract by 9.5 per cent in FY2021," she added.
Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank said," As regards monetary policy, while rate cuts remain unlikely at least till December, unconventional monetary policy support cannot be ruled out."
Arun Singh, Global Chief Economist, Dun & Bradstreet, said constrained government finances, contraction in investment activity, probable defaults both at firm and consumer level, and bankruptcies will continue to be a drag on GDP growth in FY21.
(Inputs from PTI)
