“Real GDP growth at (-)23.9% in 1QFY21 was much lower than what markets were expecting. The print indicates that the trough in the economy was much lower than expected and the pickup will likely be more elongated. Production side was pulled down by deep contraction in manufacturing, construction, and trade, hotel, transport sectors while the expenditure side was clearly pushed lower by heavy contraction both in consumption and investment. Going forward, given the gradual improvement in activity indicators (remaining well below pre-Covid levels) the growth recovery will be gradual and contracting for all quarters in FY2021. Further, growth recovery will also be hinged to the curb of the Covid spread and removal of even localized lockdowns. The choice for the government will be on whether the consumption or the investment side needs to be pushed. Given the limited fiscal space and the need to stimulate a more durable growth, the growth recovery will be gradual and is likely to continue into 1HFY22.”
Aditi Nayar, Principal Economist, ICRA Ltd
As expected, GDP and GVA plunged precipitously in the lockdown-ridden quarter of Q1 FY2021, both printing similar to our forecast of a 25% contraction. Moreover, incoming data on the MSME and less formal sectors could manifest in a deeper contraction when revised data is released subsequently. With infections continuing to climb and some states extending local lockdowns further, we maintain our forecast that the Indian economy will contract by 9.5% in FY2021.
As anticipated, construction, manufacturing and trade, hotels, transport, communication and services related to broadcasting, which together account for 45% of the economy, drove the deep contraction seen in Q1 FY2021. Agricultural growth, which benefitted from the favourable rabi harvest, nevertheless printed modestly lower than our forecast of 4%. Excluding agriculture, GVA contracted by an even sharper 26.8% in Q1 FY2021.
Siddhartha Sanyal, Chief Economist and Head of Research, Bandhan Bank
GDP contraction of close to 24% year-on-year during Q1 FY21 was sharper than expected. Double digit contraction in GDP remains likely also during the current quarter with the headwinds of fresh lockdowns weighing on economic recovery. However, rural activities seem to be relatively more resilient, and might benefit from government’s rural-focussed employment schemes in the coming months. As regards monetary policy, while rate cuts remain unlikely at least till December, unconventional monetary policy support cannot be ruled out.
Dr Niranjan Hiranandani, President ASSOCHAM, & MD, Hiranandani Group
The 23.9 percent contraction in the GDP figures of the country in the first quarter announced today by the National Statistical Organization (NSO) has not come as a surprise. As these three months witnessed a total lock-down and loss of business opportunities to control the Corona virus pandemic, stated *Dr Niranjan Hiranandani, president, ASSOCHAM.*
“We should not be getting disheartened by these numbers thought it is probably at the historic low levels. Going forward we are anticipating contractions -though a bit better in numbers- in the July- September quarter and the October- December quarter as well. However, in the quarters post that, we anticipate some amount of recovery to take place,” he added.
He explained that while sectors like Industries and manufacturing have contracted to the tune of almost 40 percent in this quarter, Trade and Hotel industry has seen a contraction of almost 50 percent. “The silver lining is the positive growth number in the agriculture sector to the tune of 3.4 percent. Rural sector is positive. Government spending is increasing which would have a cascading effect in the economy as well,” he said.
Dr Hiranandani explained that the country would witness even a recovered growth curve in the quarters after that due to the series of measures post that. “The Rs 20 lakh crore stimulus package, the measures taken by the Reserve Bank of India and the administrative reforms would show a positive outcome in the economy. The country has also taken steps towards becoming self-reliant and the effects of the same would be seen,” he said.
He also added that the figures should not dissuade anyone from seeing the positives. “There are several encouraging points that we can see. The monsoons have been good and the agriculture sector would continue to be positive in the next quarter as well. Though the recovery process will be laborious but with positive outlook we would come out of this difficult time.”
Nish Bhatt, Founder & CEO, Millwood Kane International
“The growth rate for April to June quarter was expected to be bad but it turned out worse, a degrowth by 23.9% is worse than the most bearish estimate. Positive agricultural output is the only positive element in the GDP print. As the April-June quarter saw the maximum period of the national lockdown the degrowth was severe, going forward as the government re-opens the economy in phases, government spending, and festive season spending is expected to help the growth rate to be in the positive territory going forward. While the RBI has done its part to help boost consumption and economy, a further rate cut may help boost credit offtake. The government may still have some more fire-power with further stimulus measures for specific sectors. Good monsoon, high agri output will help with a pickup in rural consumption. Government spending, reforms, and more measures to boost consumption is required to bring back growth on track.”
Sankar Chakraborti, Group CEO, Acuité Ratings & Research
“A significant contraction in Q1FY21 GDP year-on-year was in the works with the nationwide lockdown spanning a predominant part of the quarter, thereby creating a sharp economic disruption both on the supply and the demand side. With a major decline in domestic demand for most goods and services except for essential goods, it is not surprising that private consumption has dropped by 26.7% in April-June 2020. Expectedly, government expenditure has increased by 16.5%, pulling up its share in overall GDP to 18% but its ability to offset the massive decline in consumption is limited. The impact of the disruption is also seen in gross capital formation which slipped by 47.1% in Q1 and is also reflected in the weak credit offtake figures. The particularly large contraction in construction, retail and transport services along with that in manufacturing, has been clearly driven by the lockdown; except for retail and transport, most of these activities are likely to see a meaningful revival in Q2. The impact of the lockdown, however, has been the least in financial sector and government services where the decline has only been to the extent of 5%-10%, partly also reflecting the effectiveness of work from home model. In our opinion, GDP would continue to contract in Q2 although the extent of such contraction would be substantially lower; overall in FY21, a 10% contraction is a definite possibility given the slow pace of the revival.”
Published as received
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