GDP to contract 7.7% in current fiscal, advance estimates show


Pulled down by a sharp contraction in the services, manufacturing and mining sectors, India’s gross domestic product (GDP) will contract 7.7 per cent in the current financial year as against a growth of 4.2 per cent in the previous fiscal, the first advance estimates released by the National Statistical Office (NSO) on Thursday show.

The slide in growth in a tumultuous year that saw the Covid-19 pandemic and the economic impact of a months-long nationwide lockdown, is deeper than the 7.5 per cent contraction estimated by the Reserve Bank of India (RBI) in its December 4 monetary policy review.

The projected contraction reflects a loss of Rs 11.3 lakh crore of GDP in real absolute terms from last year.

Out of a total eight sectors, agriculture and electricity generation are the only two that are projected to be in positive territory, with an estimated growth rate of 3.4 per cent and 2.7 per cent respectively.

On the expenditure side, except for government final consumption expenditure, which has been estimated to increase 5.8 per cent in FY21, other drivers of demand are down sharply: private consumption expenditure is expected to contract 9.5 per cent, and gross fixed capital formation — an indicator for private investment — is expected to contract 14.5 per cent.

The (-)7.7 per cent GDP estimate rests on the assumption of government expenditure rising 17 per cent year-on-year in the second half of the fiscal from the 3.9 per cent contraction seen in the first half. This, economists said, would be crucial for the sustainability of the overall FY21 GDP estimate.


The first advance estimates of GDP, obtained by extrapolation of seven months’ data, are released early to help officers in the Finance Ministry and other departments in framing the broad contours of Union Budget 2021-22. The second advance estimates of GDP will be released on February 26.

“A 3.7% contraction in GVA of public administration and mere 5.8% growth in GFCE (lowest in last seven years) at a time when the economy is facing its worst is a bit intriguing. Imputed GVA growth of public administration (3.3%) and GFCE growth (17.0%) in 2HFY21 suggests that these estimates are contingent on government (both central and states) spending.

“If GFCE growth slows down to 10% from 17% in 2HFY21, 2HFY21 GDP contraction will increase to 0.4% from 0.1% and FY21 contraction will widen to 7.9% from estimated 7.7%,” Sunil Kumar Sinha, principal economist, India Ratings & Research said.

Dharmakirti Joshi, chief economist at CRISIL Research, said, “Excluding agriculture and public administration, GVA growth stands at (-)10%. On the expenditure side, excluding government consumption, GDP growth stands at (-)9.5%.”

The growth rate in terms of gross value added (GVA) — which is GDP minus net product taxes, and reflects growth in supply — is seen contracting to 7.2 per cent in 2020-21 from 3.9 per cent in the previous year. GDP in nominal terms, which factors in inflation, is estimated at (-)4.2 per cent as against a growth of 7.2 per cent in 2019-20.

With the lower nominal GDP growth rate, the government’s fiscal math is also expected to take a hit. The Budget estimate for 2020-21 had pegged GDP at Rs 224.89 lakh crore, while the first advance estimates have pegged the nominal GDP at Rs 194.81 lakh crore.

A sector-wise breakup of data for FY21 shows the sharpest fall in “trade, hotels, transport, communication and broadcasting services” at (-)21.4 per cent from 3.6 per cent growth last year. This is followed by 12.6 per cent contraction in the construction sector as against a growth of 1.3 per cent last year.

Manufacturing is seen declining by 9.4 per cent in 2020-21 from 0.03 per cent growth last year, while mining is expected to contract by 12.4 per cent in 2020-21 from 12.4 per cent growth last year.

Economists said there could be some improvement in the numbers going ahead. “There could be an upside in terms of improvement though it would not be very significant given the trends so far,” Madan Sabnavis, Chief Economist, CARE Ratings said.

The Finance Ministry in its statement said the movement of various high frequency indicators in recent months points to the “broad based nature of resurgence of economic activity”.

“The relatively more manageable pandemic situation in the country as compared to advanced nations has further added momentum to the economic recovery,” it said.

The RBI in its monetary policy statement on December 4 had said that private investment is still slack and capacity utilisation has not fully recovered.

“While exports are on an uneven recovery, the prospects have brightened with the progress on the vaccines. Demand for contact-intensive services is likely to remain subdued for some time due to social distancing norms and risk aversion. Taking these factors into consideration, real GDP growth is projected at (-)7.5 per cent in 2020-21,” it had said.

The advance estimates of GDP are obtained by extrapolation of indicators like the Index of Industrial Production (IIP) of the first seven months of the financial year; financial performance of private listed companies up to September; first advance estimates of crop production; accounts of central and state governments; deposits and credits; passenger and freight earnings of railways; passengers and cargo handled by civil aviation; cargo handled at major sea ports; and, commercial vehicles sales available for the first eight months of the financial year.

The NSO said the GDP estimates were likely to undergo “sharp revisions”, as the data collection for the underlying macroeconomic indicators like IIP and CPI used in the national income estimates were impacted due to restrictions imposed in March last year in view of the pandemic.

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