Coronavirus Impact- GDP Falls its lowest in 11 Years in Q4

The Gross Domestic Product (GDP) came out on 29 May 2020 showed that India’s Economy grew at its slowest pace in the last 11 years. The GDP grew 3.1% in January-March, the official data showed. However, the data is much better than what the financial experts predicted, but it is still lower than 4.1% in the previous quarter.

The GDP growth rates for the previous quarters experienced a downward revision. The GDP expansion rate for the quarter ended on December 31, 2019, was down to 4.1% for 4.7%. Growth rates for July-September were revised to 4.4% from 5.1%. For April-June it was revised to 5.2% from 5.6%. This is because of the Coronavirus pandemic wreaking havoc on the private services and Financial Sector.

Before the GDP data could be released, the Reuters poll of economists made a media forecast putting the annual Economic Growth at 2.1% in the March quarter. This was lower than 4.7% recorded in the December quarter. The forecasts ranged between +4.5% and -1.5%.

After Prime Minister Narendra Modi, announced the unprecedented lockdown on March 25, 2020, to curb the spread of the pandemic, various restrictions and total lockdown of various industries came into force. The Manufacturing, transport and other services were hit because of the lockdown. However, since May 18, 2020, the restrictions were eased.

The impact of the long lockdown on the manufacturing and services Industry will be quite evident only in the June quarter. Before the GDP data was released, the Goldman Sachs are now predicting a 45% contraction from a year ago.

The National Statistical Office (NSO) said in an official release that the Coronavirus led lockdown impacted the GDP data.

Impact on Manufacturing Sector

The impact on the manufacturing sector was huge. The contraction in the output of this sector worsened to 1.4% in the January-March period. This came down to 0.8% in the previous quarter.

Impact on Agricultural Sector

The data showed that the growth in the agricultural sector improved. The agricultural production went up to 5.9% in quarter 4 from 3.6% in the October-December period.

Estimation of COVID-19 Impact Pre-GDP Data

CRISIL forecast that the economic growth for the January-March quarter to come in at a dismal 0.5%. It estimates that the FY20 growth will be at 4%.

According to a report, the State Bank of India (SBI) research pegged that the economy to see a 1.2% growth in the January-March period. This is due to the stalling of various economic activities since the lockdown.

The Rs. 20 lakh crore package under Atmanirbhar Bharat Abhiyan package announced by the Centre failed to motivate the masses with its various reforms. Critics mentioned that the reforms were short-term ones.

COVID-19 Impact on Key Services

Hotels, Airlines, Call centres have all remained shut due to the ongoing pandemic. These shutting of these key services has played a major role in bringing the country’s worst Recession. The services sector in India accounts for 55% of its GDP.

Enterprises providing services right from travel, trade and technology have all been heavily hit. Companies like Tata Consultancy Services, Infosys LTD. are major players of the $181-billion IT industry sector of India. These service sectors provide services to the world’s largest retailers and banks. The TCS has reported a 1% slip in quarterly profit.

Other businesses like delivery services, hotel bookings, Real Estate, travel have seen a loss of jobs. Many were fired because of lack of Income and the report states that around 122 million people were out of their jobs in April.

Around 60% of branded hotels are shut and 40% are operating with lesser than 10% revenue. The shortage of workers has not allowed the businesses to take up the usual pace since the reopening of businesses on April 20, 2020.

Many of those who helped the industries to flourish were the migrant workers. Millions of these workers have fled to their villages in the hope of survival and loss of jobs in the cities.

According to a recent report by CRISIL, the aviation sector in India is likely to lose $3.6 billion three months till June. Even restaurants are expected to see 25%-30% service levels on a monthly Basis. This is subject to the first 45 days of the lockdown being lifted up. They are also likely to experience 40%-50% in revenue income this Fiscal Year.

Another rating agency, Care Rating Ltd. Estimates Rs. 5 trillion revenue loss in the travel and hospitality industry along with 35-40 million job cuts.

Conclusion

The current situation in the country is improving as there is an ease in the restrictions. The growth in the agricultural sector is a good sign. However, the growth in the overall GDP is hugely affected by the services sector who have faced a shutdown and the migrant crisis along with decreased revenue.

We can expect the economy to bounce back soon with the health sector making progress in the development of the COVID-19 vaccine. Various other measures that the public and the private sector is undertaking with regards to loans and financial relief is a boon to the economy. The country will emerge victorious out of this situation if the citizens work along with state and central governments to fight the virus.