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Q1 GDP contraction along expected lines, say government sources

But underline that global analysts expect India to be among the countries to recover fastest from the distress induced by Covid-19; note that growth is expected to recover sharply in the October-December quarter.

August 31, 2020 / 08:58 PM IST

In what is the worst performance India has witnessed in the last 41 years, the economy posted a jaw-dropping 23.9 percent contraction in its gross domestic product (GDP) in the April-June quarter of the current fiscal year, government data released on August 31 show.

Government sources, however, told Moneycontrol that it is important to keep in mind that the contraction was expected, given that it took place during a quarter when the country was in complete lockdown due to COVID-19. More importantly, they said, India is expected to bounce back.

"Overall, while the Q1 GDP decline is along expected lines, both the high frequency indicators of Q2 as well as all leading global economy analysis units are projecting India will recover the fastest and be among the select few that will get back to the high growth path," said one of the sources.

Far-reaching impact

The Q1FY21 growth numbers have confirmed fears over the far-reaching impact the coronavirus pandemic-induced economic disruption was expected to have on sectors across the Indian economy.

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Barring the agriculture sector, which grew 3.4 per cent during the quarter, all other segments were in the red. Moreover, the growth in the farm sector was not strong enough to offset the hit taken by other sectors.

Manufacturing, mining and construction contracted 39.3 percent, 23.3 percent and 50.3 percent, respectively, while trade, hotels, transport, communication and services related to broadcasting contracted 47 percent. The real estate sector, along with financial and professional services, shrank 5.3 percent in April-June 2020.

Better performance ahead

The sources added that a steady unlocking of the economy is underway and some recent trends, which were not captured in the Q1 data, could give an idea on the way forward.

“In July, petroleum consumption recovered to almost 90 percent of the consumption seen in same month last year. Manufacturing PMI has surged from a low of 30.8 in May to 46 in July. Power consumption in July 2020 is just 2.64 percent lower YoY. In July 2020, reports indicate an improvement in E-Way Bills, Coal production, Motorcycle production and various other high-frequency indicators,” one of the sources cited above said.

The sources added that the Economist Intelligence Unit (EIU) forecasts that India will be among the countries to recover fastest from the distress induced by Covid-19. According to the EIU, in Q3, India’s output will be similar to that registered one year ago and the country will recover to 2019 GDP levels in 2021.
Moneycontrol News
first published: Aug 31, 2020 08:58 pm

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