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A Statistical Analysis of India’s shirking GDP Growth

Strict nationwide lockdown due to the novel coronavirus (COVID-19) during the first quarter of the financial year 2020-21 has resulted in very limited economic activity in the country during that quarter. As a result, India’s Gross Domestic Product (GDP) for the April-June quarter (Q1) slipped by a sharp 23.9 per cent, as per provisional estimates released by Ministry of Statistics and Programme Implementation (MoSPI) on 31st August, 2020. The GDP had expanded by 5.2 per cent in the corresponding quarter of 2019-20.

This is the first instance of an economic contraction for the country in at least four decades, and also the first GDP decline since India began publishing quarterly numbers in 1996. In the January-March quarter of this year, the economy had grown by 3.1 per cent year-on-year — the lowest rate in over 17 years — and by 5.2 per cent in the June quarter of 2019-20. The rate of India's GDP growth had declined from 6.1 per cent in FY19 to 4.2 per cent in FY20, the slowest in 11 years. The contraction in the April-June Quarter was mainly due to the central government on March 25 had ordered a complete lockdown of most of the manufacturing and service sectors owing to the spread of COVID-19. Only essential services such as food items and medicines were allowed during this period as the country tried to curb the spread of the virus across the country.

As per the government data, the Gross Value Added (GVA) at basic price at constant terms during the June quarter shrunk 22.8 per cent. The GVA at Basic Price at Current Prices slipped 20.6 per cent in Q1 2020-21. The official figures were broadly in line with estimates by various agencies, all of which had forecast a decline in GDP during the quarter, though they had different in the extent of drop — from 15 per cent to 35 per cent. Here is a statistical analysis of various factors that have caused the economy to shrink.

Global Economic Outlook:

India is not alone in reporting dismal GDP numbers. The UK’s economy shrank 21.7 per cent, Germany’s by 19.0 per cent, and the US’ by 9.5 per cent. Here is the list of some major economies of the world and the state of their GDP growth.

Sectoral Analysis:

• As per the data by the National Statistical Office (NSO), all key sectors except agriculture witnessed contractions, with construction witnessing a drop of a whopping 50.3 per cent while the manufacturing industry saw a 39.3 per cent fall.
• Apart from these two industries, electricity, gas, water supply and other utility services slipped 7 per cent.
• Trade, hotels, transport, communication and services related to broadcasting contracted 47.0 per cent.
• Only the agriculture, forestry and fishing industry witnessed a growth of 3.4 per cent in the June quarter, the data showed.

Source: National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI) press release.

Major Fall in Economic Activities across all Sectors:

• The Indian Economy has witnessed a major shrink in economy activities in various sectors as can be understood from the below table.

Source: Ministry of Statistics and Programme Implementation

Engines of GDP Growth:

In any economy, the total demand for goods and services – that is the GDP – is generated from four engines of growth. These four engines are the main constituents of the GDP. They are as follows:

Where,

• C = Private Consumption (Expenditure by Individual Consumer).
• I = Investment by private sector (Expenditure/Investment by Private Businesses).
• G = Government Expenditure.
• NX = Net Export (Export minus Imports).

Contributors from various engines to GDP in the FY 2019-20:

Notes:

• The biggest engine is consumption demand from private individuals. Private consumption accounted for 56.4% of all GDP.
• 2nd Biggest engine is the demand generated by Private sector investments. It accounts for 32%
• 3rd engine is the demand for goods and services generated by the Government. It accounts for 11%
• The last engine is the net demand on GDP after we subtract imports from India’s exports. It is the smallest engine.

Quarter to Quarter Comparison:

Source: MoSPI and Express Research Group

Notes:

• Two biggest engines, which accounted for over 88% of Indian total GDP, Q1 saw a massive contraction.
• Net export while on paper, provides a boost to overall GDP, it also points to an economy where economic activity has plummeted.
• With GDP contracting by more than what most observers expected, it is now believed that the full year GDP could also worsen.
• A fairly conservative estimate would be a contraction of 7% for the full financial year.

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