+ India’s Economic Performance during 2020-21 – CII Blog

The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MOSPI), Government of India, recently released the quarterly estimates of Gross Domestic Product (GDP) for 2020-21 for the fourth quarter (Q4), along with the provisional estimates of annual income for the same period on 31 May, 2021.

GDP for 2011-12 (constant prices) or real GDP for the Indian economy for the entire 2020-21 financial year is estimated at (-)7.3%, as compared to 4% in 2019-20.

This is a result of the restrictive measures and lockdowns imposed by the Government to contain the spread of the COVID-19 pandemic, that led to a halt of economic activities and business operations, leading to a contraction of GDP[1] from Rs 145.69 lakh crore in 2019-20 (first revised estimates) to Rs. 135.13 lakh crore in 2020-21 (provisional estimates).

Provisional Estimates of National Income and Expenditures on GDP, 2020-21 (at 2011-12 prices)

                                                                                                         in Rs. crore

Source: National Statistical Office, Ministry of Statistics & Programme Implementation, Government of India

However, during the fourth quarter (January-March), the country recorded a growth of 1.6%, with real GDP estimated at Rs. 38.96 lakh crore in Q4 of 2020-21, in contrast to Rs 38.33 lakh crore in Q4 of 2019-20.

This growth was recorded before the second wave of the pandemic hit the country and was the second consecutive quarter of positive growth posted by the country (0.5% expansion during October-December (Q3)), after it entered a period of technical recession during the first half of the year.

GDP by Economic Activity

The recovery in growth in the fourth quarter was mainly driven by an uptick in manufacturing and construction activity, among the various components of GDP by economic activity.

Gross value added (GVA) for manufacturing activity increased significantly to 6.9% in Q4 of 2020-21 as opposed to 1.7% growth posted during the third quarter (Q3) of the same year.

The construction sector registered a growth of 14.5% during Q4, in contrast to a growth rate of 6.5% recorded during the previous quarter.

The electricity, gas and water supply sector also expanded substantially at 9.1%.

Quarterly estimates of GVA at Basic Prices for 2020-21 (at 2011-12) prices

Source: National Statistical Office, Ministry of Statistics & Programme Implementation, Government of India

The farm sector (Agriculture, Forestry and Fishing) also fared well and recorded a growth of 3.1%, mainly on account of above-normal monsoons and with several agriculture sectors being exempt from restrictions and curbs, following the first wave of the pandemic. The expansion is likely to continue with forecasts of normal monsoons during the June-September season.  

However, sectors such as mining and quarrying and trade, hotels, transport and communication services registered significant contractions at (-) 5.7% and (-) 2.3% respectively. These sectors were particularly hard hit as they faced the most stringent restrictions that were imposed to contain the spread of the coronavirus pandemic. 

Recovery in the service sectors were led by financial, real estate and professional services (5.4%), as well as growth in the public administration, defence and other services, (2.3%) segments.

Components of Aggregate Demand

Private final consumption expenditure (PFCE) contracted by 9.1% from Rs. 83.22 lakh crores in 2019-20 to Rs. 75.61 lakh crores in 2020-21. The slowdown in aggregate demand for consumer durables is again a reflection of the disruptions in the Covid-19 inflicted economy.

On the other hand, a positive development was the increase in government final consumption expenditure (GFCE) from Rs. 15.42 lakh crores in 2019-20 to Rs. 15.87 lakh crores in 2020-21, with a growth rate of around 3%. The increase in Government expenditure is expected to drive demand for goods and services and in turn boost output and employment growth.

However, the fourth quarter of the year also saw slowdown of fixed assets, with gross fixed capital formation (GFCF) contracting substantially by (-)10.78% between 2019-20 and 2020-21.

Imports declined significantly as a result of muted demand during 2020-21, while exports moderated during the same period.

While several sectors have ben hit hard in the country due to the ongoing pandemic, and recovery has been impacted by the second wave, it is expected that the impact will be minimal and the outlook would improve, as the country opens up in a phased manner with lifting of restrictions and easing of lockdowns.

Ramping up the vaccination programme along with continued fiscal and monetary support will be critical for a robust and sustained economic revival.

[1] GDP is derived as the sum of gross value added (GVA) at basic prices, plus all taxes on products, less all subsidies on products.