India Registers Biggest GDP Drop In 40 Years

In what comes as an official announcement of India entering a state of recession, the GDP data released on Monday showed a drop of 23.9% in the Gross Domestic Product (GDP) in the April-June quarter of the current financial year (FY 2020-21). It is for the first time in 40 years when the GDP registered negative growth. The GDP contraction in the world’s fifth-largest economy compared with 3.1% growth in the preceding January-March quarter and 5.2% expansion in the same period a year back, according to official data released.

The June quarter GDP data is the worst contraction in the history of the Indian economy mainly because the central government on March 25 had ordered a complete lockdown of most of the manufacturing and service sectors owing to the spread of COVID-19. Only essential services such as food items and medicines were allowed during this period as the country tried to curb the spread of the virus across the country. The country’s economy had last entered a recession in 1979.

As per the data by the National Statistical Office (NSO), all key sectors except agriculture witnessed contractions, with construction witnessing a drop of a whopping 50.3%while the manufacturing industry saw a 39.3% fall. Apart from these two industries, electricity, gas, water supply and other utility services slipped 7%. Trade, hotels, transport, communication and services related to broadcasting contracted 47.0%.

The Finance Minister’s claim that this mess is an Act of God and hence the government is not responsible for the crisis the nation finds itself in. While MsSitharaman’s stand is politically understandable, she needs to answer why the GDP growth rate had plummeted to 3.09% in Q4FY20, lowest in 44-quarters.

Taking a swipe at the government, former Finance Minister P. Chidambaram said, “The Finance Minister who blamed an ‘Act of God’ for the economic decline should be grateful to the farmers and the gods who blessed the farmers. As the only sectors that have grown at 3.4% are Agriculture, Forestry and Fishery.”

Chidambaram further said that every other sector of the economy has declined sharply, some precipitously. Lamenting at the government, he said that the estimates do not come as a “surprise” to us. They should be a matter of surprise to the government that was seeing green shoots on several days during the first quarter.

India’s road to recovery appears a long and hard one. Economists expect growth to rebound only in the next year, mostly led by pent-up domestic demand and pick up in the manufacturing and services sectors after the easing of lockdown.