The full year GDP for FY21, contracted by -7.3%, which is slightly better than the RBI estimates, which had pegged full year GDP contraction in the range of -7.5% to -8.0%.
10 major takeaways from the Q4 and FY21 GDP numbers
Once again, it was agriculture that saved the day for the overall GDP data, but here are some important takeaways.
1) The full year GDP contraction at -7.3% is the worst GDP performance by the Indian economy since national statistical records are maintained. The last occasion when India’s GDP showed negative growth was more than 40 years back in the financial year 1979-80, when the GDP had actually contracted by -5.2%. There never has been a single financial year of negative GDP growth between 1979-80 and 2020-21.
2) Before we go into real GDP, it is also useful to look at nominal GDP since that is the value of output and has a bearing on jobs in the economy. On a yoy basis, the nominal GDP was down -3% at Rs197.46 trillion. Just to put things in perspective, that is about $84 billion worth of output value lost in the year in nominal terms, with corresponding impact on economic activity, downstream business and job creation.
3) If you look at the gross value added (GVA), which is GDP excluding the impact of taxes and subsidies, the contraction was -6.2% in FY21 compared to growth of 4% in FY20. If you look at the components of GVA in FY21, agriculture at +3.6% and utility services at +1.9% were the positive contributors. The biggest dent of -18.2% was seen in trade, hotels and transport, for apparent reasons.
4) In the fourth quarter, construction activity witnessed GVA growth of 14.5% yoy compared to 0.7% yoy, and this was largely driven by the infrastructure thrust of the government.
5) The full year GDP contraction of -7.3% for FY21, contrasts with 4% growth in FY20, which was already GDP growth at a 11-year low. As mentioned earlier, the negative growth in FY21 is the worst ever since data was collected and the first negative GDP growth seen in the last 41 years.
6) The National Statistical Office (NSO) had estimated GDP to contract by -7.7% for FY21 in its first advance estimates and -8.0% in its second advance estimates. Hence, the actual contraction at -7.3% is around 40 basis points better than that and that can largely attributed to the marginal growth recovery in the third and fourth quarters of FY22.
7) One thing is clear that the budget constraints of the government are gradually beginning to manifest itself. The growth in public administration, defence and other state provided services grew at just about 2.3% in the fourth quarter as compared to 9.6% in the fourth quarter of FY20. Clearly, the budget constraints are showing and with a fiscal deficit again threatening to cross 8.5% this year, the spending limits are only obvious.
8) The biggest impact is that there has been a 4-5% dent on per capita GDP in India due to the pandemic. At less than $2,000 per capita GDP pre-COVID, India was already lower than most countries in Eastern Europe, Latin America and emerging Asia. Of course, most developed markets of the US and Western Europe enjoy per capita GDP in excess of $50,000. This makes India a lot more vulnerable to consumption stress.
9) COVID 2.0 may have come at a wrong time. Countries like China are growing GDP quarterly at over 18% and even the US is growing GDP quarterly at over 6%. Under these circumstances, India’s GDP growth at 1.6% is far from satisfactory and also raises questions about the FY22 projections. Till date, RBI and the other agencies are still sticking their necks out on 10.5% FY22 GDP growth and the effort must be to better this number.
10) Last, but not the least, a lot of the GDP performance in the coming quarters would predicate on how quickly COVID 2.0 is brought under control and normal economic activity resumes. India already has the second highest number of COVID cases and any GDP recovery will depend on how soon India can achieve mass inoculation. That remains unclear and the worry is that the room for errors on the downside are very limited at this point of time.