GDP contracted by 23.9 % in first quarter of 2020-2021

Published: September 2, 2020

According to the recent National Statistical Office (NSO) data, India’s Gross Domestic Product (GDP) growth contracted by 23.9% in the first (April-June) quarter of 2020. It is the sharpest contraction since India started reporting quarterly data in 1996.

Key Points

  • Construction, manufacturing, trade, hotels and other services and mining were the worst-hit sectors
  • This reflects the unprecedented suspension of economic activity in the first quarter of this fiscal due to the pandemic and the series of lockdowns.
  • Only the agriculture sector showed a positive growth at 3.4%.

Implications

  • Job loss since the sectors which have contracted (e.g. construction, manufacturing etc.) are the sectors that create the maximum new jobs in the country.
  • small-scale sector and informal sector are more affected than the organised sector
  • Defaults in the banking sector after the moratorium ends will add to the banking sector woes, impacting bank’s lending.
  • Household debt will increase with incomes stagnating, salary cuts and job losses.

Way ahead

Government should spend more either by building roads and bridges and paying salaries or by directly handing out money. Digitization and automation, shifting supply chains, urbanization, rising incomes and demographic shifts, and a greater focus on sustainability, health, and safety can also become the hallmarks. India also needs to unlock supply in land markets to reduce land costs and reduce the cost of doing business. Also, Efficient Financing is the need of hour. Further, a ‘bad bank’ can be created to take care of bad asset.

 

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