GDP projected to shrink 7.7% this fiscal: Advanced estimate - Hindustan Times
close_game
close_game

GDP projected to shrink 7.7% this fiscal: Advanced estimate

Hindustan Times, New Delhi | ByRoshan Kishore and Rajeev Jayaswal, New Delhi
Jan 08, 2021 12:38 AM IST

Nominal GDP, which is the base for revenue projections in the budget, is expected to contract by 4.2%. 2020-21 The Union Budget had projected nominal GDP growth of 10%.

India’s gross domestic product (GDP) is expected to contract by 7.7% in fiscal 2020-21, the National Statistical Office (NSO) said in its first advanced estimate released on Thursday. This is 20 basis points more than the 7.5% contraction projected by the Monetary Policy Committee of the Reserve Bank of India (RBI). The World Bank, in its Global Economic Prospects report released this month, projected that India’s GDP would shrink 9.6% in 2020-21.

The 7.7% contraction, if it materialises,would mark India’s worst economic performance since 1961-62, the earliest period for which GDP data is available on the website of the Centre for Monitoring Indian Economy (CMIE).
The 7.7% contraction, if it materialises,would mark India’s worst economic performance since 1961-62, the earliest period for which GDP data is available on the website of the Centre for Monitoring Indian Economy (CMIE).

The 7.7% contraction, if it materialises,would mark India’s worst economic performance since 1961-62, the earliest period for which GDP data is available on the website of the Centre for Monitoring Indian Economy (CMIE). However, Thursday’s numbers also underline a significant economic recovery in the second half (October-March) of the current fiscal year compared to the April-September period. GDP contracted by 23.9% and 7.5% in the quarters ending June and September. A break-up of GDP statistics suggest that government spending will play the biggest role in this sequential recovery in the second half of 2020-21.

Hindustan Times - your fastest source for breaking news! Read now.

The economic shock from the pandemic will adversely affect both private consumption and investment. Private final consumption expenditure (PFCE) and gross fixed capital formation (GFCF) are expected to contract by 9.5% and 14.5% in 2020-21. Government final consumption expenditure (GFCE) is the only sub-head on the expenditure side which will show positive growth of 5.8% in 2020-21. While agriculture will grow by 3.4% in 2020-21, industry and services are expected to contract by 9.6% and 8.8%. Total Gross Value Added (GVA) will contract by 7.2% on an annual basis.

Nominal GDP, which is the base for revenue projections in the budget, is expected to contract by 4.2%. 2020-21 The Union Budget had projected nominal GDP growth of 10%. This suggests that there is likely to be a big shortfall in revenue collections of both the central and state governments.

A comparison of actual GDP figures for the April-September period with the projected numbers for the October-March period suggests that government spending will play a key role in the sequential recovery in the second half. Both PFCE and GFCF are likely to remain in contraction zone in the second half. GFCE is expected to see a huge jump from an annual contraction of 3.9% in the first half to growth of 17% in the second. On the GVA side, trade, hotels, transport, storage and communication and mining are the only two major sub-sectors which are likely to remain in contraction zone in the second half. Agriculture was the only sector to have escaped contraction in the first half.

“NSO’s projections are based on a lot of optimism about economic performance in the second half of the fiscal year, which might not materialise, as the demand crisis is expected to worsen. This will also have an adverse impact on revenue collections and hence government spending. In any case, it is common practice for GDP projections to be revised downwards even in the period before the pandemic”, said Himanshu an associate professor of economics at Jawaharlal Nehru University. Releasing the first advanced estimates in January is a standard practice for the NSO. While these estimates are revised even in the normal course, the NSO statement has underlined the fact that pandemic-related uncertainties make it likely that the estimates could “undergo sharp revisions” in due course.

“NSO’s first advanced estimates for 2020-21 real GDP growth at (-)7.7% shows much better performance than what was predicted by multilateral agencies such as the IMF [International Monetary Fund] and the World Bank at (-)10.3% and (-)9.6% respectively”, said D K Srivastava, chief policy advisor at EY India.

“This better-than-anticipated performance is driven largely by a robust recovery in the second half of 2020-21 in three sectors, namely financial, real estate and professional services, construction, and public administration, defence and other services. The recovery in public administration, defence and other services is conditional upon central and state governments being able to substantially uplift their expenditures in the last quarter of the fiscal year. One clear implication is that the central government may have to incur a larger fiscal deficit than what was earlier announced at 12 lakh crore. We assess that the government may revise upwards, its borrowing target so as to exceed 7% of 2020-21 nominal GDP and signal a move towards restoring fiscal consolidation in a limited way in the budget estimates for 2021-22,” he added.

Unlock a world of Benefits with HT! From insightful newsletters to real-time news alerts and a personalized news feed – it's all here, just a click away!- Login Now!
Stay informed on Business News along with Gold Rates Today, India News and other related updates on Hindustan Times Website and APPs
SHARE THIS ARTICLE ON
Share this article
SHARE
Story Saved
Live Score
OPEN APP
Saved Articles
Following
My Reads
Sign out
New Delhi 0C
Thursday, March 28, 2024
Start 14 Days Free Trial Subscribe Now
Follow Us On