scorecardresearch
Friday, Mar 29, 2024
Advertisement

Sobering signals

GDP data underlines economic challenge. Much will depend on easing of lockdown restrictions, success in containing virus

India GDP data, India GDP growth, coronavirus lockdown India GDP, India GDP in coronavirus lockdown, Express Editorial, Indian Express At the aggregate level, growth in gross value added slumped to 3 per cent in the fourth quarter of the last financial year.

The GDP data released by the National Statistical Office on Friday affirms three disconcerting trends. First, the economy had slowed down considerably, even before the national lockdown was imposed to contain the spread of the coronavirus. The revised data for the first three quarters of the previous financial year indicates that the slowdown was more pronounced than was previously believed. Second, the lockdown has made matters worse. And as the data on the eight core industries for April indicates, the economic distress is likely to be more severe than expected. Third, the headline growth number is being driven by only two sectors — agriculture and government.

At the aggregate level, growth in gross value added slumped to 3 per cent in the fourth quarter of the last financial year. While growth was above expectations, as it is based on a limited set of data on earnings — timelines for submitting financial returns have been extended — the numbers are likely to be subject to downward revision as and when more data is available. Agriculture and public administration and defence, which largely reflect government, continue to drive economic activity. Excluding them, gross value added by the remaining economy grew by a mere 1 per cent in the fourth quarter. The manufacturing sector has now contracted for three straight quarters, with the pace of contraction deepening. Similarly, the construction sector has also now contracted for two straight quarters. Trade, hotels and communication have slowed down considerably, as have finance, real estate and professional services. On the other hand, private consumption growth slumped to 2.7 per cent in the fourth quarter, down from 6.6 per cent the previous quarter. And with households cutting back on discretionary spending, private consumption is likely to moderate considerably this year. Investment activity continued to be moribund, contracting now for three consecutive quarters, notwithstanding government spending on infrastructure.

Leading economic indicators paint a grim picture. The index of eight core industries contracted by 38 per cent in April, with all sectors registering a contraction. Exports declined by 60 per cent in April, while non-oil non-gold imports fell by 52 per cent, indicating weak domestic demand. However, there are some signs of economic activity picking up, though marginally, in May. While electricity generation had contracted by 22.8 per cent in April, the pace of contraction eased to 14.9 per cent in May — indicating that the gradual lifting of restrictions has led to the resumption of some economic activities. In large part, how economic activity now shapes up will depend on the easing of the lockdown restrictions, and the success in containing the virus. While one will have to wait for the April-June quarter GDP data to gauge the full impact of the lockdown on economic activity, given the problems with data collection during this period — the NSO was unable to fully capture retail inflation data — it is possible that the paucity of data makes it difficult to accurately assess the damage to the economy during this period.

First uploaded on: 01-06-2020 at 04:06 IST
Latest Comment
Post Comment
Read Comments
Advertisement
Advertisement
Advertisement
Advertisement
close