The Covid-19 pandemic is taking a heavy toll on the Indian economy with estimates now suggesting that the country’s real GDP may have shrunk by 5 per cent in July as compared to the same month last year, continuing the trend of slowdown that showed more pronounced manifestation in the April-June quarter.
According to EcoScope report from Motilal Oswal Financial Services Limited (MOFSL), e-way bill registration and power generation suggests that real GDP most likely continued to shrink (by 5 per cent YoY) in July, 2020, which is also confirmed by weak mobility indices (published by Apple and Google).
Moreover, the report said that as the COVID-19 pandemic is still not contained in India and partial lockdowns have been re-introduced in some parts of the country, continuation of stronger GDP growth is still not a given and its progress needs to be closely watched in coming months.
This is bad news for the economy that is looking ahead for better days ahead during the Unlock phase with a government economic report on Tuesday suggesting that the worst may be over for the economy as high-frequency indicators recovered in June 2020 from unprecedented troughs in April. But even this report has a word of caution : “…risks on account of rising COVID-19 cases and intermittent state lockdowns remain.”
According to the brokerage, India’s real GDP may have contracted 18-20 per cent YoY in 1QFY21. Moreover, there is expectation of another decline of 2-3 per cent YoY in 2QFY21, before real GDP posts growth in 3QFY21.
MOFSL’s Economic Activity Index (EAI) for India’s real GVA (called EAI-GVA) contracted 7.0 per cent YoY in June 2020, its fourth successive decline, which implies that economic activity shrank 18.7 per cent YoY in 1QFY21.
“Although farm activities posted the highest growth in nine years and the services sector also posted a much-slower decline (supported by massive fiscal spending), industrial activities contracted by a fifth (compared to 33 per cent fall in May 2020) in June 2020,” the report said.
EAI-GDP also declined 5 per cent YoY in June 2020, following by two consecutive double-digit declines of 30/20 per cent YoY in Apr/May 2020. Although fiscal spending and external trade supported EAI-GDP, private consumption declined 9 per cent, while investments contracted 30 per cent YoY in June. Excluding government spending, EAIGDP contracted 20 per cent YoY in 1QFY21.