GDP for FY21 expected to contract by 7.7%, according to govt estimates

The Union government has estimated that the country’s gross domestic product (GDP) will contract by 7.7% in FY21, as compared to a 4.2% growth rate in the previous financial year. While the GDP growth figures for the October-December quarter are awaited, India entered a technical recession after the economy declined by 7.5% in the July-September quarter, a second contraction in a row. 

The Ministry of Statistics and Programme Implementation said in its first advance estimates of national income that the real GDP is likely to be at Rs 134.40 lakh crore, as against the Provisional Estimate of GDP for the year 2019-20 of Rs 145.66 lakh crore, released on May 31, 2020. 

“With a view to contain the spread of the Covid-19 pandemic, certain restrictions were imposed from 25 March, 2020. Though the restrictions have been gradually lifted, there has been an impact,” the ministry said.

The Union government’s estimate of a 7.7% contraction is higher than the Reserve Bank of India, which in December, said that the economy is expected to see a real GDP decline of 7.5%, a revision from its earlier estimate of -9.5%.

“In the current pandemic led scenario, where wide fluctuations are noted in the month-wise indices with a significant drop especially in the first quarter, the usual projection techniques won’t hold good. Necessary modifications were accordingly made in extrapolating the indices based on the available information,” MOSPI said.

The second advance estimates of National Income for FY21 and quarterly GDP estimate for the October-December 2020 quarter (Q3 of 2020-21) will be released on February 26.

“Further, the projected indices may significantly vary from the actual indices which in turn will depend on the pandemic led economic situation prevalent during those months and specific measures, if any, taken by the government,” it added.

The Union government’s GDP estimates also come a day after the World Bank projected a 9.6% contraction for India’s GDP in FY21. It said in its Global Economic Prospects report that India was hit by the pandemic at a time when the economy was already witnessing decelerating growth and that the contraction in the country’s output reflects a sharp drop in household spending and private investment.