Economic system to contract by 7.7% in present fiscal: Authorities estimates

Tribune News Service

New Delhi, January 7

The Indian economy is poised for its biggest-ever contraction since 1952 after the first advance estimates on Thursday projected a 7.7% shrinkage in GDP for the current financial year.

According to analysts, the NSO’s advanced estimates are reasonably accurate as they have been correct about the real GDP growth rate in three of the past 12 years.

Manufacturing to shrink by 9.4%

  • In the current fiscal, manufacturing sector is likely to see a contraction of 9.4% whereas growth was almost flat at 0.03% in the year-ago period
  • The NSO estimates significant contraction in ‘mining and quarrying’, and ‘trade, hotels, transport, communication and services related to broadcasting’

The estimated fall is steeper than a 7.5% drop predicted by the RBI and other rating agencies. However, the World Bank has forecast shrinkage of 9.6% this year.

The numbers are driven by negative growth in seven of the eight core sectors for which data is reported. Agriculture will be the sole bright spot and is projected to grow at 3.4% but manufacturing will contract 9.4%. The worst hit will be trade, hotel, and transport in the services sector which are projected to contract by 21.4%. Manufacturing has continued with its pre-Covid poor performance when it registered a growth of just 0.03% last year.

The first quarter saw a contraction of nearly 24%, mainly due to one of the most stringent lockdowns imposed in the world. It slowed down to 7.5% in the second quarter.

Fiscal deficit likely to be over 7% of GDP

  • Fiscal deficit for year ending in March is likely to be over 7% of GDP, as revenue collection suffered from a lockdown and restrictions to rein in the spread of Covid
  • The government had projected a fiscal deficit of 3.5% of GDP for the current year last February
  • The government estimated borrowing of 7.8 trillion rupees, later revised to 12 trillion rupees, to provide relief to millions of people and businesses hurt by the pandemic

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