GDP Q1’FY21 – A Quarter is Lost…

The GDP for the quarter ended June’20 (Q1’FY21) has suffered an unprecedented decline as per the data released by NSO (National Statistical Office) today. With a decline of 23.9%, almost a quarter of the GDP has got wiped out! The economy’s performance is among the worst across the globe and with daily Covid cases hitting close to 80,000, global highest, government seems to have failed to protect both – health of the economy and of its people. While this may have been the worst for the economy, it is difficult to predict how far it would go before the worst is over for the people. Here is a brief analysis of GDP and its constituents.

GDP vs GVA – As per the report, Indian economy recorded GDP of Rs 26.9 lakh crore during June’20 against Rs 33.35 lakh crore a year ago (constant prices, 2011-12 base). This corresponds to a decline of 23.9%, the worst since the data is being collected and possibly, the worst even before that. The GDP is marginally higher than the GDP for Sept-Dec’15 quarter and the pandemic takes us 4½ years back. GVA (Gross Value Added) for the quarter stood at Rs 25.5 lakh crore, corresponding to a decline of 22.8%. The difference between GDP and GVA is equal to net tax (tax minus subsidy) collected by government and lower decline in GVA than GDP implies government managed to partially protect its revenues. Net government taxes stood at Rs 7.54 lakh crore, against Rs 8.46 lakh crore a year ago. While this has declined by 11%, it is a silver lining in contrast with the GDP figure!

Sectoral Analysis – While economy’s aggregate figure is represented by GDP, individual sector’s data is captured through GVA. GVA is dis-aggregated across eight sectors – Agriculture, Mining, Manufacturing, Electricity (& other utilities), Construction, Trade (hotels, transport etc), Financial (& other services) and Public Administration (& defence etc). Of these, trade and construction were the worst hit declining by 50% and 47% respectively. With a share of almost 20% in total GVA, trade has contributed the maximum. Manufacturing, accounting for highest blue-collared jobs, was almost equally hit with a decline of close to 40%. The only solace is agriculture, which managed to record growth of 3.4%, marginally higher than average growth of previous eight quarters. Financial and other service, possibly the only sector to manage reasonable degree of continuity with ‘work from home’ arrangement managed to restrict the decline at 5.3%.

However, the figure for public administration & related (largely government driven) appear quite puzzling. While it has recorded a decline of little over 10% as per the report, the expenditure side figure shows that government’s total expenditure has risen by sharp 16.4%. If the government has increased its spending, why it not getting reflected under this heading and if not this, which item has it impacted?

Expenditure Analysis – Other than production side, GDP data is also reported from expenditure side also. The expenditure is divided into three groups – private final consumption expenditure (PFCE), government final consumption expenditure (GFCE) and gross fixed capital formation (GFCF or investments). To this, net exports (export minus imports), change in inventory etc are adjusted, which are not very significant, to arrive at final GDP. Of these, while PFCE declined by about 27%, GFCF received a jolt with a decline of 47%. While Covid is certainly a big blow, the stress in the investments had begun even earlier, with decline of over 5% during July’19-March’20 period. It may be noted that manufacturing sector had been running at a capacity utilization of just about 67% which needs to increase to about 80% before capital expenditure decisions are taken. As stated earlier, GFCE at nearly Rs 6 lakh crore rose by over 16%, to take care of Covid mitigation – healthcare, food and other necessities for the vulnerable section.

GDP – Quarterly Figures.

Agriculture,forestry & fishing3.
Trade, hotels, transport etc8.
Financial , real estate & prof servs6.
Public Administration, defence etc8.
Source – MOSPI

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