India’s economy is in a severe slowdown that is only going to get worse in a pandemic-stricken world. Three months after Finance Ministry mandarins prognosticated that India’s growth slowdown had bottomed out, the latest economic data has belied that prediction. Crucially, the GDP growth estimates for the January-March quarter and the full fiscal year barely reflect the impact of the public health crisis and the stringent lockdowns, which were imposed nationwide only from March 25. The NSO’s estimates show fourth-quarter and fiscal 2019-20 growth slumped to 3.1% and 4.2%, respectively, the slowest pace in 11 years. The government says the lockdown impacted data flow, and with statutory reporting timelines extended the estimates would likely undergo revision. However, the fact that Gross Value Added numbers for the first three quarters have been revised significantly downwards shows that the economic malaise was deep and widespread even before the novel coronavirus landed on Indian shores. Four of the eight industry sectors that together comprise the GVA are now revealed to be in far worse shape than was reported earlier. This includes manufacturing, which contracted for a third straight quarter and shrank by 1.4% in the fourth quarter; construction, a major job generating activity that continued to weaken and contracted 2.2%; and the two largest services categories. The revisions in the trade, transport, hotels and communications, and financial, real estate and professional services sectors have cut third-quarter growth figures by 1.6 and 4 percentage points, respectively.
The economy is visibly mired in a demand drought that is unlikely to abate any time soon. Private consumption spending, which accounts for 55-60% of GDP, extended a downtrend as growth slid to 2.7%. Investment activity contracted for a third consecutive quarter and shrank 6.5%. Data coming in for the current fiscal are revealing the devastating impact that the lockdown has had. Output at the eight core industries that represent 40% of the Index of Industrial Production contracted by an alarming 38% in April. Merchandise exports shrank 60% in the same month. The RBI, which cut interest rates on May 22, was categorical in its assessment that a recovery would likely start only from the October quarter. For even that to materialise, the Centre must act. Its package so far has been focused on credit enhancement measures that ease supply side constraints and structural reforms that may bear fruit over a longer horizon. But the imperative now is to bite the bullet and opt for a massive fiscal stimulus that actually puts cash in the hands of consumers and the millions of jobless youth in order to help revive demand.