Q1FY21 GDP – COVID KILLS GROWTH

The Q1FY21 GDP came in at (-)23.9%, a much sharper fall than what most analysts had expected.

No one is going to take these numbers too seriously as the data is not 100% given the challenges it had in collection of data on account o the lockdown and pandemic.  The markets most certainly did not – it fell today not on account of the expected GDP contraction but due to re-emergence of skirmishes at the India-Chinese border and implementation of the new margin system from September. A fall in GDP was already discounted by the market thus it has moved on beyond Q1.

Expecting the Govt to take these numbers seriously and announce some measures is being too naïve. The priority has to be on getting a control over the pandemic , bring down the infection as the country starts opening up because unless that happens, no consumption will happen and that in turn means no growth. Health, health and only health will remain the priority of the people and should be for the Govt too.

Insights into the numbers (QoQ):

• Agriculture – 3.4% v/s 5.9%
• Mining – (-) 23.3% v/s 5.2%
• Manufacturing – (-)39.3% v/s (-)1.4%
• Electricity, gas, water, public utilities – (-)7% v/s 4.5%
• Construction – (-)50.3% v/s (-)2.2%
• Trade – (-)47% v/s 2.6%
• Financial, realty, professional services – (-)5.3% v/s 2.4%
• Public Admin – (-)10.3% v/s 10.1%

As expected, the two broad trends which have emerged from these numbers –manufacturing, construction, and trade and hotels, transport, communication have been most massively hit while agriculture has done pretty well but it came as a complete surprise to know that public administration too contracted sharply by over 10%.

The Q1FY21 GDP numbers that we see today show us the direct impact of the lockdown, the migration of labour, job losses and more importantly, pathetic investment climate. It is not the amount of contraction which is important; what is important is how we emerge out of it. Contraction world over, except for China, is a given. Thus it is pretty foolish to cry over this loss of growth but if we do not show significant growth, rather slower pace of contraction from here in Q2FY21, then we will be in true crisis mode. Q2 will also be a contraction but we can probably start seeing improvement only from Q4 onwards.

We already got an insight into what to expect when we saw the core sector output shrink for the fifth consecutive months.  The combined index of eight core industries contracted 9.6% in July from a year ago. This is much better than the contraction of 37.9% in April, 22% in May and 12.9% in June. Production of coal, crude oil, natural gas, steel and electricity continued to contract in July though at a slower pace of decline. But on the other hand, production of cement and refinery products fell more in July than in June, indicating sluggish demand for energy and construction material.

Last week RBI released its Annual Report and it refrained from giving us its assessment of GDP growth/contraction. It only went on to say, “assessment of aggregate demand during the year so far suggests that the shock to consumption is severe, and it will take quite some time to mend and regain the pre-Covid momentum”. Now that was ominous enough.

And now that RBI has the numbers, it will be easier for it to assess the amount and nature of damage to the economy and what measures – fiscal as well as policy will be needed to revive the economy.

In July 2019, the FM had estimated the fiscal to end with a GDP of 7 to 8% and as the year progressed, it progressively tapered it down and finally was at 4%. As against that, what we have now just goes on to show how we only ‘think’ we are in control when actually, we control nothing, not even our minds!