India’s gross domestic product growth grew 1.6% for the fourth quarter but for the entire fiscal year (2020-21) it contracted 7.3% as the country battled Covid-19 and imposed lockdowns to curb the spread of the virus, according to data released by the statistics ministry.
This is India’s worst annual performance in just over four decades. The last full-year contraction happened in 1979-80 (-5.2%).
During the year India went into a technical recession after growth contracted in the first two quarters – by 24.38% in the first quarter and 7.5% in the second quarter. It exited the recession after recording a marginal growth rate of 0.4% in the third quarter. Even before the pandemic, the country’s growth was on a steady decline since Q4 FY17, and its 2019-20 growth was only 4%, an 11-year low.
The Central Statistics Office had projected an 8% contraction in 2020-21 and 1.1% in the March quarter, while the Reserve Bank of India had projected a 7.5% contraction for FY21. However, most of the analysts had expected a good bounce in the March quarter.
According to the government’s data, in terms of gross value added the manufacturing and construction sectors showed impressive growth in the fourth quarter, while growth was modest for agriculture and negative for the mining sector. The manufacturing sector grew 6.9% for the fourth quarter, as against a contraction of 4.2% a year ago, while the construction sector grew 14.5% from 0.7% during the year-ago period.
The agriculture sector grew 3.1%, compared with 6.8% a year ago. The mining sector shrank 5.7%, as against a contraction of 0.9% a year ago.
Chief economic adviser Krishmamurthy Subramanian said the pandemic had caused the contraction but he felt that the impact of the Covid-19 second wave is likely to be less severe. He emphasized the need to increase the pace of vaccination to reduce the impact of the pandemic.
The central bank in its recent report said the impact of the Covid-19 second wave was less severe on the economy than the first, but India’s growth prospects now essentially depend on how fast it can control coronavirus infections. “The recovery of the economy from Covid-19 will critically depend on the robust revival of private demand that may be led by consumption in the short-run but will require acceleration of investment to sustain the recovery,” the report stated.
India currently has a Covid-19 caseload of over 28 million, second only to the United States, and had recorded 329,100 deaths as of Monday. Although the daily numbers of new cases and deaths have shown declines in the last few days, experts say the authorities should exercise caution while easing the curbs. The second wave peaked during the second week of May, with daily new cases exceeding 400,000 and a death toll of over 4,000.
The stress caused by the two waves is now taking a toll on consumer demand, as household incomes have declined due to job losses, salary cuts and closure of businesses. Unemployment soared to a near one-year high of 14.73% in the week ending May 23, according to the Center for Monitoring Indian Economy, a private think tank.