The gross domestic product (GDP) measures the national income and output for a country's economy. The gross domestic product (GDP) is equal to the entire expenditures for goods and services produced within the country in a specified period.
The government-induced lockdown due to the global outbreak of the COVID-19 has disruptively impacted the Indian economy in the fiscal year 2020. The economy shrank by 23.9% year-on-year in the second quarter of 2020. This is the highest contraction on record for the Indian economy and the country remains the third worst-affected in the world by the pandemic.
In March, India improved by 3.1%, which is the slowest in 11 years. By the end of March, the GDP grew at 4.2% in comparison with the previous year’s 6.1% growth rate.
Goldman Sachs estimated that India’s strict lockdown and the financial volatility of the industries may lead to GDP contracting by a massive 45% in June.
As per the S&P Global Ratings, assuming the ongoing GDP growth rate of the country, the Indian economy is estimated to contract 5% in the fiscal year 2021. Indian arm Crisil, Fitch Ratings, and Goldman Sachs also claimed the same.
❖ Impact of Covid-19 on India’s GDP
The gross domestic product (GDP) of India contracted by a massive 23.9% in the first quarter of the fiscal year 2020. The country had one of the most stringent Covid-19 lockdowns which in turn impacted the economic conditions. India's economic slowdown for the lockdown period is much worse than the majority of the global economies.
According to the Fitch Ratings, India showed one of the sharpest GDP contractions in the world from April to June. They also estimated growth in July to September due to the gradual easing of the lockdown period.
In June 2020, India’s GDP decline of 23.9 % due to the nationwide lockdown has caused stress on the future well-being of the economy. As per S&P ratings, India is projected to a GDP growth of 8.5% for 2021-22.
On the other hand, Fitch Ratings claimed India's growth projection in 2021 to be (-) 10.5%, from (-) 5% estimated earlier, as the coronavirus cases surge upwards over time affecting the Indian economy.
Taking into account the current condition of the Indian economy there are multiple drawbacks for it to recover from this massive recession. For 2021, Fitch predicted the Indian economy to grow 11% and 6% for 2022.
As per the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation publishing the forecast of GDP for April to June 2020-21, both at Constant (2011-12) and Current Prices said, "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 contraction of 23.9 % as compared to 5.2 % growth in Q1 2019-20. Quarterly GVA at Basic Price at Constant (2011-12) Prices for Q1 of 2020-21 is estimated at Rs 25.53 lakh crore, as against Rs 33.08 lakh crore in Q1 of 2019-20, showing a contraction of 22.8 %".
While the real Gross Value Added (GVA) is expected to rise at 4.9% in 2019-20 as corresponded to 6.0% in 2018-19. The growth of real GDP was 4.7% for the third quarter of 2019-20, as corresponded to the growth of 5.6% and 5.1% in the first quarter and second quarter respectively of 2019-20.
❖ Industries affected due to the negative growth of India’s GDP in FY2020
The financial instability of the economy has affected the industrial sectors of India, such as trade, hotels, transport and communication, financing and banking, real estate, and business services and community, social and personal services. These hold a significant amount of 60% of India’s GDP. Whereas, the agricultural and fishing industry includes almost 12% of the GDP. Manufacturing estimates for 15% of GDP, construction for another 8%, and mining, quarrying, electricity, gas, and water supply for the residual 5%.
According to the report of the National Statistical Office (NSO), gross value added (GVA) growth in the manufacturing sector declined by 39.3% in the first quarter of 2020-21, from 3% expansion in 2019. The construction area GVA decreased by 50.3% from 5.2% expansion earlier. Mining manufacturing declined by 23.3%, as against a growth of 4.7% a year ago. Power, gas, water supply, and other utility services withdrew by 7 % against 8.8% growth a year ago. Though, the farm sector GVA increased at 3.4%, corresponding to 3% from 2019 to 20. The trade, hotel, transportation, communication, and services linked to broadcasting declined 47% in the first quarter from 3.5% extension earlier. The commercial, property, and professional services dropped by 5.3% in Q1 FY21 from 6% growth in the previous year.
Retail payment transactions through NPCI platforms rebounded sharply in June and July,
after the dip during the lockdown months of April and May, signaling a larger shift
towards online payments amid the pandemic. UPI payment transactions hit an
all-time high of Rs. 2.9 lakh crore in value and 149 crores in volume terms in July. The broadband subscriber base also grew in May after dipping in April. Industrial production saw a record decline of 38.1 % in Q1 2020-21 owing to the unprecedented blows of lockdown induced standstill during April and May.
In July the railway sector was seen to recover due to the transportation of materials like iron, steel, fertilizers and etc. Indian steel sector demonstrated a V-shaped recovery in July from its April lows with domestic production and consumption gaining a strong pace. However, cement and petroleum products witnessed a decline in growth.
Credit rating agency India Ratings and Research revised the country's gross domestic product (GDP) forecast to -11.8 % for the financial year ending March 2021, from -5.3 % earlier. The rating agency, however, said it expects the country's GDP to rebound, and expand at 9.9 % year-on-year in the financial year 2021-22, mainly due to the weak base of the financial year 2020-21.
Passenger vehicles like small-cars and two-wheeler sales also surged up in the month of August as people were preferring to travel in a private car than availing public transport due to the coronavirus. Rising sales of fertilizers and registrations for commercial and agricultural tractors from March to August also is further indicative of strengthening rural demand.
❖ Future of the Indian Economic condition
A recent report by Mckinsey Global Institute implies that India’s GDP will need to improve at 8 to 8.5% yearly for the following 10 years to build 90 million or nine crore non-farm jobs. An 8-8.5% growth is twice of what India achieved in 2019-20.
Since the beginning of the fiscal year 2019, the employment scope in India was deteriorating.
At present, the rising cases of the coronavirus in the country have made this situation much worse.
In July 2020, more than 18.9 million salaried individuals, or 21 % of the entire workforce had lost their jobs due to the Covid-19 pandemic and is estimated to get much worse in the coming months of the current fiscal year. The pandemic is foreseen to increase the wealth gap in India, as indicated by the World Bank report, 1.2 crore Indians could be pushed into extreme poverty, which is living on less than $1.90 (Rs 139) per day.
The global rating agency anticipates India's GDP to shrink 10.5% in 2021. It is more than double the 5% decline it had forecasted in June.
Whereas, Fitch's estimate for India was in opposition with its marginally revised forecast for the global economy in 2020–a 4.4% contraction against a 4.6% fall seen in June.
Currently, India is accountable for the worst affected country by the Covid-19 pandemic and is forecasted to drastically fall in its economic conditions. It holds the lowest GDP amongst all the other countries and is growing at a slow pace.
According to a report in The Economic Times, Economists assume the recovery in India's economic growth will be more gradual than earlier expectations after the country's GDP shrunk by a higher-than-expected 23.9% in the June quarter, the worst in more than the last 40 years.