India posts worst GDP fall of major economies as Covid spikes
INDIA's economy fell 23
INDIA's economy fell 23.9 per cent in the three months to June from a year earlier, the biggest contraction among major economies last quarter, revealed the Statistics Ministry, Bloomberg reported.
Once the world's fastest-growing major economy, India is now on track for its first full-year contraction in more than four decades. While there are early signs that activity began picking up this quarter as lockdown restrictions were eased, the recovery is uncertain as India is quickly becoming the global epicentre for infections.
'While the start of the July-September quarter has likely benefited from a post-lockdown boost, those gains are already at risk of being lost amid the ongoing pandemic and New Delhi's hesitance to open the fiscal taps,' said Priyanka Kishore, head of India and Southeast Asia economics at Oxford Economics in Singapore.
Financial services - the biggest component of India's dominant services sector - shrank 5.3 per cent last quarter from a year ago. Trade, hotels, transport and communication declined 47 per cent. Manufacturing shrank 39.3 per cent while construction contracted 50.3 per cent.
Mining output fell 23.3 per cent, and electricity and gas dropped seven per cent. Agriculture was the lone bright spot, growing at 3.4 per cent.
A mix of monetary and fiscal measures so far to prop up the economy won't prevent it from sliding into recession. The government has provided only limited fiscal support given constraints on revenue growth, while the central bank has cut interest rates by 115 basis points so far this year, boosted liquidity and transferred billions of rupees in dividends to the state.
A separate report on Monday showed the government already breached its full-year budget deficit target in the first four months of the fiscal year that began April 1 as revenue receipts collapsed.
Krishnamurthy Subramanian, the government's chief economic adviser, said the quarterly slump was largely expected and due to an 'exogenous shock that has been felt globally.'
The economy is 'experiencing a V-shaped recovery' after the lockdown eased, he said in comments distributed to reporters, adding 'we should expect better performance in subsequent quarters.'
The statistics office said it relied on alternative indicators such as indirect tax collections and interactions with professional bodies in the absence of field surveys during the lockdown last quarter. The data will likely undergo revisions as more information becomes available going forward, it said in a statement.
The economy will probably shrink 5.6 per cent in the year to March, according to a separate Bloomberg survey published ahead of the quarterly numbers.
'Growth recovery will also be hinged to the curb of the Covid spread and removal of even localised lockdowns,' said Suvodeep Rakshit, senior economist at Kotak Institutional Equities in Mumbai. 'The choice for the government will be on whether the consumption or the investment side needs to be pushed.'