India’s GDP in unprecedented freefall, contracts by 23.9%

New Delhi: The Covid-19 pandemic-induced economic turbulence, along with measures to curb its outbreak, heavily dented India’s economy and plunged the country’s GDP by (-) 23.9 per cent during the first quarter (Q1) ended June 2020-21 on a year-on-year basis.

According to the National Statistical Office (NSO), the Gross Domestic Product (GDP) in Q1 of 2020-21 is estimated at Rs 26.90 lakh crore, as against Rs 35.35 lakh crore in Q1 of 2019-20, showing a decline of 23.9 per cent.

In financial parlance, a GDP contraction not only indicates the economy’s movement towards a recession, but also underlines the reduction in purchasing power along with lower taxes for the government, higher defaults on debt and falling capex spends.

Though not comparable, the GDP had grown by 5.2 per cent in the corresponding quarter of FY2019-20.

In the quarter just preceding Q1FY21, the economic growth was at 3.1 per cent.

“As the world economic outlook has highlighted, the fraction of countries, where GDP per capita would decrease, is the highest since 1870, so once in a one and a half century event is what we are going through,” said Chief Economic Adviser to the government, Krishnamurthy Subramanian, commenting on the Q1FY21 GDP data.

“India was also in a ‘lockdown’ all through the April-June quarter with the majority of economic activities being restricted, so this trend is along the expected lines.”

Meanwhile, with economic disruptions set for a long haul due to Covid-19 pandemic, India could see its fiscal deficit this year balloon to over 8 percent of GDP, brokerages analyzing the deficit numbers post release of August GST collection data have said.

The Controller General of Accounts said that the country’s fiscal deficit has expanded to 103.1 per cent of Budget Estimate in the April-July period primarily due to lower tax collection and higher expenditure for Covid-19 relief.

According to a report on Indian economy by Kotak Institutional Equities, low economic activity and lower tax collections coupled with expanded Covid-19 related expenditure have created a scenario where the deficit would widen.

Image courtesy of (File photo)

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