India GDP Q1 data: Ravaged by coronavirus, economy may take several quarters to recover

Experts feel the pandemic's disruption will not be static. In the first quarter, it was a supply constraint as the lockdown interrupted economic activity.

August 31, 2020 / 06:49 PM IST

Pummelled by the coronavirus outbreak, the first quarter GDP numbers reflect the dire state that the Indian economy, which was struggling even before the pandemic struck, find itself in.

According to the data released by the Central Statistics Office, the GDP growth for the April-June quarter witnessed a contraction of 23.9 percent, perhaps the steepest fall in headline GDP numbers.

The first quarter numbers provide an indication of what lies ahead for the full year on the growth front.

A longer wait for the coronavirus vaccine may lead to a contraction of up to 7.5 percent in the Indian GDP in FY21, according to the Bank of America Securities.

Experts say the disruption wrought by the pandemic will not be static. In the first quarter, it was a supply constraint as the lockdown interrupted economic activity. Precautionary savings by households will also add to the demand deflation.

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Among sectors, manufacturing, aviation, construction, trade and hotels have faced the brunt of the pandemic while agriculture and public administration have performed reasonably well.

The distress in MSME sector is also a big cause of concern.

According to Aditi Nayar, Principal Economist, ICRA, timeline for a firmer recovery out of the contraction phase is now expected in Q4 FY21.

Activities in sectors such as consumer durables and FMCG are gaining traction but the majority of the companies are still operating at low capacity due to labour constraints and feeble demand.

Many economists have also suggested that the rural economy and supply of essential goods and services remained unaffected by the lockdown and people should not be carried away by extreme predictions of a contraction in the economy this fiscal.

A major factor in the recovery process will be the number of coronavirus infections. As long as cases rise, fear will remain and normalcy will not be restored.

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The government has tried to mitigate the impact of the pandemic by rolling out stimulus packages and reforms. On-ground sentiments have improved with the staggered roll back of restrictions but recovery remains erratic as states come up with their own sets of guidelines.

Some indicators like power, fuel consumption and freight showed normalisation from June onwards.

The journey to recovery is going to be one which is defined by resilience and willingness to implement measures acknowledging previous consternation.

 
Moneycontrol News
first published: Aug 31, 2020 06:25 pm

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