The GDP growth rate for FY20 is estimated to be 4.2%, as compared to 6.1% in FY19.

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Money Economy Friday, May 29, 2020 - 18:03

India's GDP growth rate in Q4 of FY20 declined to 3.1%. While the GDP growth had been on a decline, even before the pandemic, it was further impacted by the lockdown due to the coronavirus at the end of March. While the lockdown was in place only in the last seven days of the quarter, it offers a glimpse into what the first quarter of FY21 could look like, with brokerages expecting a sharp degrowth.

The growth in GDP during 2019-20 is estimated at 4.2% as compared to 6.1% in 2018-19.

There was a marginal improvement in the GDP growth rate in Q3 of FY20 at 4.7%, after it declined for five consecutive quarters.

In its release, the National Statistics Office said that due to COVID-19 and and the lockdown since March-end, data flow from the economic entities has been impacted. “As some of these units are yet to resume operations and owing to the fact that the statutory time-lines for submitting the requisite financial returns have been extended by the government, these estimates are based on the available data. Consequently, the estimates (quarterly as well as annual) are likely to undergo revision,” it said.

Meanwhile, the output of the eight core sectors in India declined by a massive 38.1% in April, as against a decline of 6.5% in March 2020. This was a result of the COVID-induced lockdown, which led to coal, cement, steel, natural gas, refinery, crude oil, among other industries experiencing a substantial loss of production.

The massive magnitude of last month's fall was also evident on a year-on-year basis. The index of eight core industries had risen by 5.8% in March 2019. The eight core industries are coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity.

Coal production declined by 15.5%, crude oil production by 6.4%, natural gas production declined by 19.9%, while petroleum refinery production declined by 24.2% in April 2020 as compared to April 2019. Steel production declined by 83.9% in April 2020, while cement production declined by 86.0%.

Multiple brokerages expect the GDP growth for the current financial year (FY21) to take a hit, and the economy to contract.

RBI Governor Shaktikanta Das had also said that GDP growth in Q1 of FY21 is estimated to remain in the negative territory. “Assuming economic activity gets restored in a phased manner especially in the second half of this year, and taking into consideration favorable base effects, it is expected that the combination of fiscal, monetary and administrative measures being currently undertaken both by the government and the RBI could create conditions for a gradual revival in activity in the second half of 2021. Nonetheless, downside risks to this assessment are significant and contingent upon the containment of the pandemic and quick phasing out of social distancing and lockdown,” the Governor added.

He had also said that the inflation outlook is highly uncertain. 

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