Global economy going through 'once in 150 years' event: CEA on GDP contraction

As India reported a 23.9 per cent contraction in GDP for the first quarter of FY 2020-21 on Monday, Chief Economic Adviser K.V. Subramanian said the slump in the economy has been in line with the global economy as it is going through a "once in a one and half century" event.

Addressing the media after the announcement of the GDP numbers, Subramanian said that the negative growth rate in GDP was in expected lines as India went through a complete lockdown during the April-June quarter as other countries.

He attributed the dismal economic performance in the last quarter to "an exogenous shock that has been felt globally", referring to the pandemic and the resultant lockdown.

"As the world economic outlook has highlighted the fraction of countries where the GDP per capita would decrease is the highest since 1870. So once in one and a half century event which is what we are going through," the CEA said.

"India was also in lockdown all through the April to June quarter with the majority of economic activities being restricted. This drift is along expected lines," he added.

Data released by the National Statistical Office (NSO) showed that India's GDP for the quarter ended June 2020-21, contracted by 23.9 per cent. Though not comparable, the Gross Domestic Product (GDP) had grown by 5.2 per cent in the corresponding quarter of FY2019-20. In the quarter just preceding Q1FY21, the economic growth was at 3.1 per cent.

The country had observed mobility restrictions as mandated under the lockdown measures for the better part of the first quarter of FY21.AIt was only on June 1 that partial unlock measures were implemented.

Subramanian also cited the Oxford University Index to suggest that Indian lockdown was 15 per cent more stringent than in the UK. "The UK contracted by 22 per cent and given the higher intensity, the GDP contraction in India is on the expected lines," he said.

But amidst the gloom, the CEA said that greenshoots of a recovery were already visible and India is already experiencing a V-shaped recovery after the unlocks have been announced.

He said that core sector growth, which declined by 38 per cent in April, progressively reduced the decline to 22 per cent in May, 13 per cent in June and 9.6 per cent in July. Similarly, railway freight traffic which is a good indicator of economic activity, stood at 95 per cent of the previous years levels in July and in August it has actually grown by 6 per cent in first 26 days of the month. E-way bill in August is also almost the same as last year at 99.8 per cent despite some local lockdowns.

"So overall there is clearly a V shaped recovery. Agriculture sector, which has grown by 3.4 per cent, is reflective of the several reform measures announced by the government. Rural inflation is higher than urban inflation, which captures that rural demand is picking up," Subramanian said.

"In sum this decline is expected given the lockdown which happened globally and India is definitely experiencing a V shaped recovery. So we should expect better performance in subsequent quarters," he said.