India’s Q1 numbers may be among lowest in G20
GDP for the three months ended June 30, to be released on Monday, is expected to be the worst since India started reporting quarterly data in 1996
India’s gross domestic product (GDP) is set to report a record contraction in the fiscal first quarter, more severe than most G20 nations, as the strict lockdown to curb the spread of Covid-19 weighed heavily on the economy.
The GDP data for the three months ended June 30, which is scheduled to be released on Monday, is expected to be the worst since India started reporting quarterly data in 1996.
Seven economists surveyed by Mint forecast GDP to shrink in the range of 25.5% to 15.2%, with a median of 21%.
So far, the UK has reported the biggest slump in GDP among the world’s top 20 economies with a 21.7% plunge in the June quarter, its deepest contraction on record.
Widespread restrictions imposed during India’s nationwide lockdown, which began on 25 March and continued till end May, are being gradually lifted.
While April and May are considered wipeouts for most businesses, pent-up demand somewhat boosted consumption in June, though well below the pre-Covid-19 levels.
Abheek Barua, chief economist at HDFC Bank Ltd, expects GDP growth to contract by 21% in the June quarter.
“Manufacturing is likely to see the sharpest slowdown, followed by services, based on high-frequency indicators. On the other hand, the only support to growth is likely to come from the agricultural sector that was relatively insulated from the impact of the virus. We estimate the contraction in GDP will be close to 25% if we exclude farm activity in Q1 FY2021,” he said.
However, State Bank of India, in a report released last week, said June quarter GDP could positively surprise the market on better-than-expected corporate performance. “In principle, the revenue decline of listed firms has been far outstripped by cost rationalization, thereby not impacting margins. According to our estimates, Q1 FY21 real GDP degrowth would be now around –16.5%,” it added.
High-frequency indicators such as the Index of Industrial Production (IIP), manufacturing PMI and auto sales contracted sharply. The only silver lining could be the performance of the farm sector, which may see a growth of 3-4%. Favourable monsoon, increased availability of water in reservoirs for irrigation may provide support to farm sector growth.
However, data unavailability could mar the credibility of GDP numbers. NSO didn’t officially publish factory output figures for April and May citing data issues as a majority of industrial establishments did not operate.
Pranjul Bhandari, chief India economist at HSBC, advised caution in interpreting GDP data as the absence of informal sector data could result in overestimation.
“The pandemic is likely to have hurt the informal sector more acutely as it comprises small firms with limited economic buffers to withstand shocks. And if formal sector data is taken to proxy informal activity at such a time, GDP can potentially be overestimated.”
