Analysis of GDP Growth of -23.9% in 1st Quarter of FY 21

Dinesh K Vohra
Dr. Sushma Gajapure ‘Sudiv’

GDP growth figures for 1st quarter of FY 21 are out now. NSO declared these figures on last day of August 2020 which were slightly beyond the expectations of SBI, ICRA, Nomura and other such institutions. The GDP growth figures of -23.9 for Quarter 1 of FY 21 actually shocked government quarters as they were expecting figures to be around 16.5 % as was also confirmed by Saumya Kanti Ghoahs, Chief Economist, SBI. However the real figures were much beyond the expected numbers. These figures are for formal sector of economy and state of informal economy which accounts for almost 85% of economy has actually not figured into these shocking figures. If figures for informal sector were to be taken into account, the picture would have been much more miserable.

The 1st quarter figures has also confirmed that GDP growth figures for full year will now be around -10% which is now real time possibility. Government economists are expecting a V shaped recovery from 3rd quarter as 2nd quarter is also a kind of wash out but in the absence of any kind of consumption theory, how a V shaped recovery is being thought upon is difficult to understand. The only bright spot in entire story of gloom is agriculture sector which has shown a mild 3.4% of increase else all sectors are in deep red at present.
If we look at various sectors of economy, it will become evident that hospitality, aviation, tourism, automobile, real estate and some other sectors have suffered immensely while some other sectors like retail and daily consumption items sale is limping back to normal.Most of jobs do emanate from hospitality, aviation, retail and real estate. In actuality real estate is yet to begin its operations for want of labour and demand in various cities.

Lets see what exactly is the meaning of -23.9% contraction in economy for common man. It’s an accepted fact that Indian economy is worth Rs. 200 lakh crore or $2.7 Trillion. Now most economic experts have opined that after the announcement of -23.9% in GDP growth in 1st quarter, it’s almost certain that contraction for this year will be around -10% in GDP for FY 21. It clearly means there will be reduction of 10% from amount of Rs. 200 lakh crore and by the end of FY 21, economy will be around Rs. 180 lakh crore which will be around $2.43 Trillion in dollar terms. Never in last 73 years, has Indian economy has seen such a contraction. Now to reach back to the position of Rs. 200 lakh crore (March 2020), it may take minimum 2 years with a nominal growth of around 8-10% per year for next two fiscal years i.e. 2021-22 and 2022-23.

Indian per capita income at 200 lakh crore GDP amounts to around $2,050-2,100 which will contract to around $1,900 or even less. Now this will impact Indian citizens’ spending power adversely. Any contraction in GDP will also reduce the spending power of common man and it will directly impact general consumption. Now most of schemes declared by government or RBI are on supply side and none on consumption/demand side. Unless the common man gets more money in his pocket, how consumption could be revived. It is bound to impact economy adversely as people will remain in essential goods purchasing domain and in-discretionary consumption may not return back to market before April 2023 which is expected to be year when Indian economy will recover from its losses in FY 21.

Incidentally India is very weak in three pillars of economy i.e. capital, technology and exports while entire economy was running on single pillar of local consumption. Now even that pillar has also crashed, how India can recover from this catastrophe? Apart from that private investments are almost in dead mode and it is evident from given data from previous 4-5 years. Indian economy had been on decline since 2016 (Notebandi Year) and GDP growth for year 2019-20 had slide down to 4.1%. The last quarter growth figures for FY 20 were dismal 3.1%. So the trajectory of growth was on a slide even before Corona Virus hit the country.

When all the pillars of economy are in minus mode, any hope of fast or a V shaped recovery is nothing more than a pipe dream. The hope of chief economist of government that consumption will come back soon but in the absence of any kind of stimulus for common man how it’s possible? Probably government is expecting a miracle but miracle happens only in fantasies. Job losses, reduction in wages, more burden on rural economy, unemployment at very high levels and no hope of consumption highs in near future present a bleak picture. Moreover government debt is now at astronomical highs and from next year, debt servicing will be a huge burden that will leave less money for development. Unless government comes out with some consumption/demand side fiscal measure soon, situation is likely to deteriorate further.

(Dinesh K Vohra & Dr. Sushma Gajapure ‘Sudiv’ are independent writers on economic and contemporary issues)

The author is an independent writer on contemporary issues

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