NEW DELHI: The Indian economy has witnessed a drastic contraction in the quarterly GDP, shrinking 23.9 per cent in the first quarter of the ongoing financial year, and economists say these estimates could be more devastating when revised.
To counter the damage, the government should step in aggressively to roll out the next set of fiscal and monetary measures to bolster slackening demand and ensure more inclusive growth, says India Inc.
According to former chief statistician Pronab Sen, the GDP fall in the first quarter may “underestimate the impact of the Covid-19 pandemic” as the National Statistical Office (NSO) might have come up with a much lower contraction because corporate data was used as a proxy for the informal sector.
Govinda Rao, Chief Economic Advisor, Brickwork ratings echoed similar sentiments. "Given the absence of data on the informal sector, which was among the worst hit during the first quarter of 2020-21 due to the lockdown, these GDP numbers may only be revised downwards,” he said, warning that the economy has entered a recession phase.
Industry bodies, meanwhile, anticipate the economy to stage a recovery third quarter onwards supported by measures taken by the government and the Reserve Bank. However, more economic stimulus in form of GST rate cut, sector-specific reforms, easy loans, incentives and everything but the kitchen sink without the financial sector coming crashing down is the need of the hour to bring the economy back to the positive territory.
“The government through the Atma Nirbhar package has given significant impetus. There is now a need to have enhanced focus on execution. In addition, the government may consider further measures like putting more money in hands of the vulnerable and weaker sections of society. The festive season has already begun and some positive signalling by the government, by way of GST cut for instance, might give a push to consumption activity,” said Sangita Reddy, President, FICCI.
She added sector-specific announcements for tourism, retail, hospitality and healthcare sectors are eagerly awaited as well. "Greater impetus to housing, infrastructure and auto sectors and support to state governments for purchase of buses for city transportation must also be considered," Reddy noted.
Confederation of Indian Industry Director General Chandrajit Banerjee, too, expects a recovery in the second half led by supportive fiscal and monetary policies. The growth in the farm sector (+3.2 per cent) and government spending (16.4 per cent) provided some cheer, he said, adding gradual lifting of lockdown and reopening are likely to further improve economic activity.
Barring agriculture, all other sectors were on a free fall. Manufacturing, construction and trade sectors reported massive slump of 39.3 per cent, 50.3 per cent, and 47 per cent, respectively as as the coronavirus-led nationwide lockdown disrupted activities.
"Going ahead, growth recovery will also be hinged to the curb of the Covid-19 spread and removal of localised 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 is likely to continue into H1 FY22," pointed out Suvodeep Rakshit, vice-president & senior economist at Kotak Institutional Equities.