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Indian Economy Plunged: GDP falling Nearly 24% in Q1

In the recent development, the Indian economy contracted by 23.9% in the second quarter. Unfortunately, no big media house is covering the story.

It’s the biggest decline of any major global economy. Economists say this will impact the informal sector of the nation at very great extend, pushing the situation to further worse.

The GDP fall is considered to be the most drastic fall in decades. The government is blaming the COVID-19 situation, however, things were not right even before the pandemic. India’s decline is the worst among the top economies.

The U.S. economy shrinking 9.1% in the same quarter, Japan’s 9.9%, Britain is next worst-hit at 21.7% and China is best performing with a positive growth of 3.2%. Data released by the National Statistical Office (NSO) shows construction, manufacturing and transport industries among the hardest-hitting sectors. Here are some of the highlights;

Gross value added (GVA) growth in the manufacturing sector contracted by 39.3% in the first quarter of 2020-21.

The construction sector GVA contracted by a whopping 50.3% from 5.2% expansion earlier.

Mining output declined by 23.3%, as against a growth of 4.7% a year ago.

Electricity, gas, water supply and other utility services segments too shrank by 7% against 8.8% growth a year ago.

Trade, hotel, transport, communication and services related to broadcasting declined 47% in the first quarter from 3.5% growth earlier.

Financial, real estate and professional services fell by 5.3% in Q1 FY21 from 6% growth in the same period last fiscal.

Public administration, defence and other services saw a decline of 10.3%, from 7.7% growth a year earlier.

1 ComparativeGDPgraphpublishedbyBusinessStandardonTuesday

As PM Narendra Modi requested people to stay home and imposed nationwide lock-down, millions of workers who over the years had been drawn to the urban centres for jobs started returning home to rural areas. This has caused an unprecedented shortage of workers after unlock. Resulting in a slow pace in construction business, the Real Estate market is on a verge of collapse, adding to that coronavirus is fueling the burn. India has now reported over 4 million cases, becoming the second most badly hit country after the United States.

“The strict lockdown led to a sharp contraction in activity in Q1 with job or income losses being faced by people,” said Aditi Nayar, an economist at ICRA, an investment and credit rating agency in New Delhi.

The government allowed the production of essential services during the lock-down, but the fast-moving consumer goods (FMCG) faced a decline, as most of the people couldn’t go to work. The offices and factories remain shut. Government offices were also closed and only the essential administration and police were functional. After the ease of lock-down, the activity started to recover however, it remains at almost 40% in many areas. The slow rate has pushed the rate of recover to the backseat.


“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 percent as compared to 5.2 percent growth in Q1 2019-20,”said the NSO.

During the period of April to June, the economy was down about 57% compared to the level in 2019. Many blamed the COVID-19 situation, but demonetization is said to be the real culprit which drastically affected the unorganized sector far from the sight of recovery. The unorganized sector constitutes 94% of employment and 45% of the output of the economy. Looking at the data, it’s quite clear the decline in the unorganized sector was not captured in the GDP data. Implicating the figure of 23.9% only represents the organized sector.

“The Indian economy is in a deeply vicious cycle, where demand is contracting so heavily, while the capacity to neutralize this contraction has also contracted equally because of the tax revenue contraction. Therefore, I don’t see GDP returning to positive territory for six quarters, until the second quarter of next year,” said D. K. Srivastava, chief economist at Ernst and Young.

Even the agricultural sector, which worked out in the open during lockdown was adversely affected due to short in demand and freezing of trade and transportation. Floriculture, horticulture, vegetables, poultry and milk are some of the commodities which suffered. The only bright side is, the sector grew 3.4% than three percent in the previous quarter, thanks to strong rain this monsoon season.

As of now, the revival of the economy seems to be a tedious process. The government measure to address this issue will be under tight watch. As it has been speculated, the Indian economy may decline 10% by next year. Meanwhile, the number of COVID-19 infected people is crossing 80 thousand per day, the normalization of situation is hard to predict.

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Aman Yadav

I describe myself a devilish curious breed, avid learner, fond of expeditions, relish bowling and part-time movie buff. Flairexperience in content development domain. I'm a small cog in the digitally transforming world.View Author posts