India's GDP to contract by 7.7% in 2020-21, says government

The central government projects the country's economy to contract by 7.7 percent in the current fiscal year 2020-21, as per the first advance estimates of gross domestic product released by the National Statistical Office on January 7.

The agriculture sector estimate for FY 2021 stood at 3.4 percent. Also, mining estimate stood at -12.4 percent for FY21 against 3.1 percent (YoY), and nominal GDP estimate stood at -4.2 percent.

"The movement of various high-frequency indicators in recent months, points towards broad-based nature of resurgence of economic activity. The relatively more manageable pandemic situation in the country as compared to advanced nations has further added momentum to the economic recovery," the government said in a press release.

The government said that as two vaccines get emergency use approval in India, the government was undertaking preparations for a mass mega vaccination drive. However, while the impending vaccination is drawing closer, continued observation of COVID-appropriate behaviour, caution and surveillance is crucial.

"While the advance estimates of GDP for FY2021 have been based on data that is available for only the first six to eight months, the modifications made in the extrapolation process seem to have captured the impending upturn expected in the remainder of this extremely tumultuous year," Aditi Nayar, principal economist, ICRA, said.

Among other details, the gross value added (GVA) estimate stood at -7.2 percent for FY21 against 3.9 percent in FY20. For the manufacturing sector, the estimate for FY21 stood at -9.4 percent against 0 percent (YoY). Meanwhile, the construction sector estimate for FY21 stood at -12.6 percent against 1.3 percent (YoY).

Private final consumption for FY21 has been estimated at -9.5 percent against 5.3 percent year-on-year. Government final expenditure for FY21 has been estimated at 5.8 percent against 11.8 percent year-on-year. Gross fixed capital formation for FY21 has been estimated at -14.5 percent against -2.8 percent year-on-year.

"We maintain our expectation that the Indian economy will contract by 7.8 percent in FY2021 in real terms, with the recession ending in the current quarter with a mild YoY growth. We expect the nominal GDP to contract by 4.5 percent in FY2021," Nayar said.

The first advance estimates for a financial year is usually released before the Union Budget for the next year. This data, as well as projections for the coming year, are shared by NSO with the Finance Ministry and other departments, to aid in the budget-making process.