In February, when the government came out with the second advance estimates of national income, official statisticians projected that India’s real (inflation-adjusted) gross domestic product (GDP) will contract (-) 8 percent during 2020-21.
These projections may well hold on May 31, when the government releases the provisional full-year GDP data. The peculiarity of India’s data release calendar that comes with a two-month lag, however, would only allow a peek into what the economy has been through.
In ordinary times, past data, generally, offer strong cues of how the economy will likely behave in the months or quarters ahead. These are, however, extraordinary times where the deadly COVID-19 virus has bludgeoned economies to smithereens.
How to correctly interpret the growth data
In India’s case, the immediate past on the GDP front may actually mirror the opposite of what could happen in the coming months. GDP growth during the fourth quarter (January to March) 2020-21, will likely be around the positive territory, given shop-end consumption spending markers such as car sales and retail footfalls, as well as a few investment metrics such as construction activity.
These trends will not hold in the first quarter (April-June) of the current financial year (2021-22) as the lethal Covid-19 second wave swept through the country, exacting a very heavy human toll.
The effect of the COVID second wave
The second wave’s consequence on the broader economy is still a matter of conjecture, although the surge has since corrected and various mathematical models suggest that by the end of June, the wave will be well and truly over.
Many areas of the country, particularly cities with high economic activity such as Mumbai, Delhi, Chennai and Bengaluru, continue to remain in various degrees of lockdown. These restrictions, absolutely necessary to break the chain of Covid-19 infections and save lives, however, have had a deep bearing on the economy.
Footfalls in malls, shops, restaurants, and activity in factories and construction sites have screeched to a halt. This has affected both spending and investment, the impact of some of which could be long drawn.
If one were to plot India’s quarterly GDP growth on a graph, it will broadly resemble the letter V, falling sharply by 24.4 percent and 7.3 percent in the first two quarters and then growing 0.4 percent in the third quarter, with a broadly similar expectation during the last quarter.
The next quarter (April-June), will again, however, likely show a sharp plunge given the devastation that the second wave has caused to the economy. The bigger question to watch out for is whether the slide in April-June this year turns out to be deeper than last year.
Statistics can sometimes provide an erroneous picture of the real state. This is particularly relatable in interpreting sets of data that are compared over periods of time across different years. For instance, we are currently witnessing one of the slowest periods of economic expansion as state, district and city-specific lockdowns remain firmly in place.
That said, when national income data for April-June this year is released in August, the comparison will always be made with the corresponding quarter of 2020. What has queered the pitch is that for most part of April-June 2020, India was going through one of the most stringent lockdowns in the world to contain the first wave. This showed up in the steep 24.4 per cent real GDP contraction during the quarter.
National income statistics are about levels of output, income and expenditure. Growth, per se, is a derived characteristic. So, it might so happen that actual levels of GDP during April-June this year, despite the impact of the second wave, turns out to be slightly greater than those of last year.In the national income data this will show up as “growth”, driven by a favourable statistical base effect. One should guard against drawing fallacious interpretations, for the expansion reflected in such a growth will primarily be statistical, and not real.