Drop in Q1 GDP on expected lines; India on a V-shape recovery path: CEA K Subramanian

The sharp drop in the first quarter real Gross Domestic Product (GDP) of the country is on the expected lines as major part of the April-June quarter was under a lockdown, says Chief Economic Advisor K Subramanian on Monday after the release of the first quarter GDP numbers.

The first quarter GDP contracted sharply by 23.9 per cent to Rs 26.90 lakh crore compared to Rs 35.35 lakh crore in the corresponding period last year.  This is the sharpest contraction since the country started publishing quarterly GDP numbers in 1996. The last time India recorded a contraction in GDP was in 1979-80, when the annual GDP fell by 5.2 per cent.

The June quarter economic performance was primarily due to an exogenous shock felt globally after the COVID-19 pandemic resulted in global lockdown in the said quarter. As the World Economic Outlook highlighted, the fraction of countries where GDP per capita would decrease is highest since 1870, so it is a one-and-a half-century event, which is what we are going through. India was also in a lockdown all through April-June quarter with majority of economic activities being restricted. These numbers are along expected lines," said the CEA.  

He compared India's first quarter performance with the UK, which is of similar size of India in terms of the GDP.  "The UK, where the lockdown was 15 per cent less severe, posted the contraction of 22 per cent. So, given the higher intensity of the lockdown in India, the numbers are on expected lines," he added.

The CEA, however, said that India has been witnessing a V-shaped recovery ever since relaxation in lockdown was announced. He cited improvement in core sector numbers, pick-up in railway freight traffic, electricity consumption and e-way bill generations.

"Core sector growth, which had declined by 30 per cent in April, shows gradual improvement -- 22 per cent decline in May, 13 per cent in June and 9.6 per cent in July. The core sector is clearly showing a recovery. Railway freight traffic, which is a good indicator of economic activities, was at 95 per cent of the last year's level in July and in August (till August 26) it was 6 per cent higher.

He also said that power consumption is only 1.9 per cent lower than last year, while e-way bill generation in August was almost same as last year (99.8 per cent).

"We all know e-way bills capture inter-sate trades which do get affected by local lockdowns and yet e-way bills are 99.8 per cent for the days for which we have data for August," he said.

The GDP at Constant (2011-12) Prices in the first quarter is estimated at Rs 26.90 lakh crore as against Rs 35.35 lakh crore in Q1 of 2019-20 showing a contraction of 23.9 per cent compared to 5.2 per cent growth in Q1 2019-20.

The nominal GDP in the first quarter contracted by 22.6 per cent to Rs 38.08 lakh crore compared to Rs 49.18 lakh crore in the same period last year.

Agriculture is the only sector that saw growth with the sector registering a 3.4 per cent growth compared to previous year.

On the agriculture sector growth, Subramanian said: "The growth in the agriculture sector is reflective of the several reform measures announced by the government in the sector. This is also reflected in rural inflation which is higher than urban inflation, which captures the pick-up in rural demand."

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