India’s economy is estimated to contract by a record 7.7% in 2020-21 ravaged by the impact of the Covid-19 induced lockdown, with the crucial services and manufacturing sectors taking a massive hit and the farm segment expected to be the only bright spot.
The first advance estimate released by the National Statistical Office comes ahead of the Union budget on February 1. The budget is expected to unveil fresh measures to get economic growth back on track. The NSO data estimated the economy to contract by 7.7% compared to an 11-year low growth of 4.2% in 2019-20.
This will be the first contraction in over four decades since the 5.2% fall recorded in 1979-80. This is also the record contraction since annual GDP data began to be published in 1951-52. The RBI estimates GDP to contract by 7.5% while other agencies forecast in the range of 7.4% to 10.3% decline for the current financial year and rebound next year on the back of the low base and measures unleashed by the government and the RBI.
The impact of one of the strictest lockdowns in the world has been evident on the economy with a record slump of 23.9% in the June quarter. The restart of economic activity has helped narrow the contraction to 7.5% in the September quarter, with the festival and pent-up demand lending a huge push. Most economists now estimate the economy to return to positive territory in the third and fourth quarters and move away from the technical recession that it entered with two consecutive quarters of contraction.
Thursday’s data showed only the farm and electricity sectors posted growth, with agriculture forecast to grow by 3.4% and electricity by 2.7% in 2020-21. The crucial manufacturing sector is estimated to contract by 9.4% compared to a 0.3% growth in 2019-20. Construction, which has been hit hard by the lockdown, is forecast to contract by 12.6% in 2020-21, while hotels, transport, communication and broadcasting services is estimated to decline by a record 21.4% in the current fiscal. The overall services sector, which accounts for nearly 60% of the economy, is estimated to fall by 8.8% in 2020-21 compared to a growth of 5.5% in 2019-20.