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Lockdown Effect Continues, Indian Economy Shrinks 7.3% in 2020-21

A crash in consumer demand and soaring unemployment pose fresh challenges, with analysts warning of risks to growth from slow pace of COVID vaccination.
GDP Lockdown

New Delhi: India's economy contracted by less-than-expected 7.3% in the fiscal year ended March 2021 after growth rate picked up in the fourth quarter, just before the world's worst outbreak of coronavirus infections hit the country.

The gross domestic product (GDP) in Asia's third-largest economy grew by 1.6% in the January-March period, up from 0.5% in the previous quarter when India began pulling out of a steep pandemic-induced recession in the earlier six months.

GDP had grown by 3% in the January-March quarter in the previous year.

The economy, which was facing a slowdown even before the pandemic broke out last year, contracted by 7.3% during April 2020 to March 2021 fiscal (FY21), weighed down by nationwide lockdown that pummelled consumption and halted most economic activities.

This is the first full-year contraction in the Indian economy in the last four decades since 1979-80, when GDP had shrunk by 5.2%.

The economy had grown by 4% in the previous 2019-20 fiscal.

The GDP expanded by 8.3% in FY17 before slipping to 7% in the following fiscal and to 6.1% in 2018-19.

According to data released by the National Statistical Office (NSO), India's real GDP contracted to Rs 135 lakh crore in FY21 (2020-21) from Rs 145 lakh crore at the end of March 2020.

To regain Rs 145 lakh crore size, the economy will have to grow by 10-11% in the current 2021-22 fiscal but the outbreak of the second wave of COVID-19 infections last month has disrupted the momentum of economic activity and many expect the GDP may not touch double-digit growth rate despite the low base.

Even though daily COVID-19 cases have come down from a peak of over 4 lakh to 1.5 lakh, a crash in consumer demand -- constituting over 55% of the economy -- and unemployment soaring to near one-year high of 14.73% pose fresh challenges.

Analysts have warned of risks to growth from slow pace of the four-month-old vaccination programme.

While the NSO had previously estimated that the economy will contract by 8% in 2020-21, the Reserve Bank of Inda (RBI) had projected shrinkage of 7.5%.

China, which was once the hotbed of coronavirus infections, has recorded 18.3% economic growth in January-March 2021.

Separately, higher tax collections helped arrest fiscal deficit (excess of government expenditure over revenue) at 9.3% of GDP in FY21, against 9.5% projected previously and 3.5% estimated when the Budget was presented in February 2020.

Even before the outbreak of the pandemic, the fiscal deficit had soared to a seven-year high of 4.6% of GDP in 2019-20 mainly due to poor revenue growth.

The government has pegged the fiscal deficit during the current 2021-22 fiscal at 6.8% of GDP.

Indian economy contracted by a record 24.4% in April-June 2020 and by 7.3% in the following quarter.

The government had imposed a lockdown on March 25, 2020 to combat COVID-19. Later the lockdown restrictions were eased in phases. But it dented the economic growth eventually in the later period of the last fiscal. The Indian economy swung back to black in the October-December quarter.

According to the NSO data, gross value added (GVA) growth in the manufacturing sector accelerated to 6.9 in the fourth quarter of 2020-21 compared with a contraction 4.2% a year ago.

Farm sector GVA growth was down at 3.1%, compared to 6.8% in the corresponding period of 2019-20.

Construction sector GVA grew by 14.5% from 0.7% growth earlier. Mining sector shrank by 5.7%, against a contraction of 0.9% a year ago.

Electricity, gas, water supply and other utility services segment grew by 9.1% in the fourth quarter, against 2.6% expansion a year ago.

Similarly, trade, hotel, transport, communication and services related to broadcasting contracted by 2.3% in the fourth quarter from 5.7% growth earlier.

Financial, real estate and professional services grew by 5.4% in Q4 FY21 from 4.9% growth.

Public administration, defence and other services growth fell to 2.3% during the quarter under review, from 9.6% a year earlier.

"GDP at Constant (2011-12) Prices in Q4 of 2020-21 is estimated at Rs 38.96 lakh crore, as against Rs 38.33 lakh crore in Q4 of 2019-20, showing a growth of 1.6 percent," the NSO statement said.

"Real GDP or Gross Domestic Product (GDP) at Constant (2011-12) Prices in the year 2020-21 is now estimated to attain a level of Rs 135.13 lakh crore, as against the First Revised Estimate of GDP for the year 2019-20 of Rs 145.69 lakh crore, released on 29th January 2021.

"The growth in GDP during 2020-21 is estimated at (-)7.3 percent as compared to 4 percent in 2019-20," it said.

The statement said the measures taken by the government to contain the spread of the pandemic have had an impact on economic activities as well as data collection mechanisms.

However, there have been disruptions in the data flow from some source agencies, leading to data coverage issues, it noted, adding that “limitations in the datasets and the timeliness have a bearing on the GDP estimates and its subsequent revisions”, it explained.

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