Global Economy

India’s GDP growth in Q4 & FY20 sinks to 11-year low

New Delhi: India’s gross domestic product (GDP) expanded at the slowest pace in 11 years for the fourth quarter and FY20 as the Covid-19 took hold in March, adding to pressures on an already slowing economy. A nationwide lockdown was imposed on March 25 but business activity had begun grinding to a halt a few weeks before that.

The core sector contracted by a record 38% in April as the lockdown hit all eight infrastructure sectors, according to data released separately. Cement output fell 86% while fertilisers and crude oil shrank 4.5% and 6.4%, respectively, in April.

‘Covid Hit Several Industries’

The decline in electricity generation worsened sharply to 22.8% in April from 8.2% in March.

“In view of nationwide lockdown during April 2020 due to Covid-19 pandemic, various industries — coal, cement, steel, natural gas, refinery, crude oil etc — experienced substantial loss of production,” the commerce and industry ministry said in a statement on Friday.

Independent economists said worse is to come, flagging a recession with GDP expected to contract in the first two quarters of the financial year, given that the lockdown has been in place for about two months.

To be sure, some businesses have resumed functioning but large swathes of the economy are at a standstill.


GDP Growth

GDP expanded 3.1% in the quarter, data released by the government on Friday showed, the slowest since a 0.2% rise in the fourth quarter of FY09.

FY20 growth is estimated at 4.2%, the lowest since FY09 when GDP was 3.1% and well below the 5% estimated at the end of February.

Growth estimates for the previous three quarters were all revised down — to 4.1% from 4.7% in the December quarter, 4.4% from 5.1% in the July-September period and to 5.2% from 5.6% in the June quarter, implying a deeper slowdown even before Covid-19 hit.

In an ET poll this week, independent economists had expected March quarter GDP growth at 0.5-3.6% and that of FY20 at 4-4.7%. That figure is expected to be revised lower as the estimates are based on incomplete data, experts said.

“In view of the global Covid-19 pandemic and consequent nationwide lockdown measures implemented since March 2020, the data flow from the economic entities has been impacted,” the National Statistical Office (NSO) said in a statement on Friday, adding that the estimates would be revised going ahead. Full-year nominal GDP growth is estimated at 7.2% in FY20 against 11% the year before.

Broad-based slowdown

Manufacturing shrank 1.4% in the fourth quarter as factories shut toward the end of March. Agriculture and public administration grew 5.9% and 10.1%, respectively. Construction contracted 2.2% while the financial sector, usually one of the fastest-growing, saw only a 2.4% rise. Gross fixed capital formation (GFCF), an indicator of investment, shrank 6.4% on year in the March quarter.

“The impact of lockdown for one week in March was clearly sharper than expected, which brought the growth rate down, while for FY20 there were revisions in the nine-month growth numbers, which brought down the number,” said Madan Sabnavis, chief economist at CARE Ratings. As per the official statement, major indicators such as crude oil production, commercial vehicle sales, aggregate bank deposits and cargo handled at airports, contracted in the fourth quarter.


Rating agency ICRA expects a 25% contraction in the June quarter but sees a V-shaped recovery if the lockdown is lifted by the end of June.

While the government has gradually eased restrictions, economic activity was muted in April and May, also dented by the flight of migrant labour. The current phase of the lockdown is to end on May 31.

A further wave of infections could derail any recovery.

“If there is a second wave of infections that forces subsequent lockdowns either in India or globally, the ensuing demand uncertainty and supply chain hiccups could result in a W-shaped economic cycle, the inflection points of which can’t be gauged at this stage,” said Aditi Nayar, principal economist, ICRA.

ICRA expects the economy to contract 5% in FY21.

The government has unveiled a Rs 20-lakh crore relief package that includes liquidity measures taken by the Reserve Bank of India (RBI) to counter the impact of the lockdown. The RBI has cut rates twice to record lows besides providing liquidity support and regulatory relief.

Some economists have said these measures won’t do enough to spur demand. In the absence of private demand, India Ratings expects government expenditure to drive growth in FY21. “Weak commodity prices and import demand will also provide some support to growth. Despite this, the economy will contract in FY21 after FY80,” said Devendra Kumar Pant, chief economist at India Ratings.


Leave a Reply