India Growth Forecast for 2020-21
IIndias Growth Forecast for 2020-21
Amarendra Das
School of Humanities and Social [email protected]
Subhankar Mishra
School of Computer [email protected] Institute of Science Education and ResearchBhubaneswar-752050, Odisha, IndiaHomi Bhabha National InstituteAnushaktinagar, Mumbai - 400094, India
Abstract
COVID-19 has put a severe dent on the global economy and the Indian Economy. Inter-national Monetary Fund has projected 1.9 percent for India. However, we believe that due toextended lockdown, the output in the first quarter is almost wiped out. The situation mayimprove in the second quarter onwards. Nevertheless, due to demand and supply constraints,input constraints, and disruption in the supply chain, except agriculture, no other sector wouldbe able to achieve full capacity of production in 2020-21. The signals from power consumption,GST collection, contraction in the core sectors hint towards a slump in the total output produc-tion in 2020-21. We derive the quarterly GVA for 2020-21 based on certain assumptions on thecapacity utilisation in different sectors and the quarterly data of 2019-20. We provide quarterlyestimates of Gross Value Addition for 2020-21 under two scenarios. We have also estimated thefourth quarter output for 2019-20 under certain assumptions. We estimate a 2 .
3% growth in2019-20 and a contraction of output in 2020-21 to the extent of 23 to 25% .
COVID-19 has put a severe dent on the global economy, national economies, and regionaleconomies alike. IMF [1] forecasts that the global output is to contract sharply by − − . − .
8% growth. In early April ADB had forecast a 4% for India during 2020-21. Professor C.Rangarajan and D. K Srivastav [3] have estimated 4 .
4% growth for India in 2019-20 and 2 . .
6% growth in the lastquarter of 2019-20, 4 .
7% in first quarter, 5 .
3% in second quarter, 5 .
7% in third quarter and6 .
1% in fourth quarter. However, given the length of complete lockdown in India and thesuspension of most of the economic activities in the first quarter it is hard to believe that theIndian economy will achieve any growth in 2020-21. We apprehend that the total output inIndia will contract drastically in the first quarter, although there will be some improvement inthe subsequent quarters, growth of total output wont be higher than the last year. Therefore,the fear of a double-digit contraction in the output looms large.The nationwide lockdown was imposed on March 25. This suspended almost all economicactivities including the operation of factories, construction activities, running of trains, buses, a r X i v : . [ q -f i n . GN ] M a y gency Growth Prediction IMF [1] 1.9%Fitch Ratings [2] 0.8%ADB [4] 4%Professor C. Rangarajan and D. K Srivastav [3] 4.4%
Our Prediction -23%
Table 1: Growth Prediction for India FY 2020-21 and flights. There are many signals of the fall in the output in the first quarter. The powerconsumption in April 2020 has declined by 22.75% as compared to April 2019 [5]. The coresector output fell by 6.5% in March 2020 with just one week of lockdown in the country [6].The Gross Direct Tax collection in April had declined by 5.4% [7]. The tax collection by theIncome Tax Department in April is the tax collected by the employers for the income of March.Therefore, the income tax collection for the month of April will be reflected in May. Thismay show a significant decline in direct tax collection. This is vindicated from the fact thatmost of the private companies have slashed the salary of employees up to 50%. Even in thepublic sector, the Union government froze the Dearness Allowances for one year. Many stategovernments have slashed the salary of government employees. The GST collection of stateshas declined by more than 75% [8]. The Union government has deferred the release of the GSTcollection data for April month. The CMIE data further shows that the unemployment rate inthe first week of May has gone up to 23.8 percent. Most of the metros in India are coming underthe red zones, where more than one-third of the total output is produced. Due to the movementof migrant workers, the number of districts coming under red zones are increasing every day. Inthis context it would be unwise to expect any normal operation of economic activities soon. Allthese signals a drastic fall in the total output and income in the country during the first quarterof 2020-21. Therefore, we believe that instead of any growth the Indian economy will witness aslump in the total output.If we assume that the lockdown will be relaxed from mid-may, then one and half month ofthe first quarter is going under lockdown. Although the state and national governments haverelaxed some selected economic activities in lockdown 3.0 starting from May 04, it is far fromthe normal operation of those sectors. Even if the lockdown is relaxed from mid may, therewill be a lot of restrictions in most of the economic activities. Therefore, the effect of COVIDmay continue in the second quarter and third quarters. We may expect normal activities in thefourth quarter. If we look at each sector independently during this fiscal year, agriculture is lessaffected compared to all other sectors. The manufacturing and service sectors are the worst hitsectors due to lockdown. Due to COVID, this export would be badly affected. Due to massiveunemployment, and the return of migrant workers from within the country and outside, thepurchasing power of the people will shrink. Thus the aggregate demand (internal + external)will decline significantly.In this context we have attempted to calculate the GSVA of India for the last quarter of2019-20 and all four quarters of 2020-21.
We have used the GVA data provided by RBI in its website database on the Indian economy.We have used the quarterly GVA data for 2018-19, 2019-20 in 2011-12 constant prices. TheGVA data for the fourth quarter of 2019-20 are not available. Therefore, first of all we estimatethe same using two broad assumptions. Since the lockdown was imposed in the last week of thelast quarter it would have impacted the GVA in all sectors badly. In March, all governmentand private agencies try to achieve the targets. Even though the nationwide lockdown was mposed from March 25, many states had already imposed a lot of restrictions from mid-March.Keeping this scenario in mind we assume that only the agriculture sector would not witness anycontraction and produce as much as it had produced last year. All other sectors would witnessa 6 percent contraction. This assumption is based on the findings that in March the core sectorswitnessed 6 percent contraction. Using the fourth quarter data of 2018-19 we estimated thefourth quarter GVA under these assumptions. Aggregating all the quarterly data for 2019-20we derived the GVA for 2019-20 and estimated the quarterly growth rate and annual growthrates for the year 2019-20.Next we calculate the GVA for the year 2020-21. At the outset we assume that in the absenceof any growth, the nation has the capacity to produce at least the same level of output thatwas produced in 2019-20. But the real output would be much different. Due to lockdown in thefirst quarter, the output of one and half quarters is almost wiped out, barring a few sectors likeagriculture, banking, public administration, and defense, etc. The entire country could haveused around 25% of the output capacity in the first quarter. This assumption can be supportedby different other indicators like reduction in power consumption, GST collection, Therefore,we assume that, the in most of the sectors, full output potential cannot be realized at least inthe first two quarters. In the second quarter even though the lockdown would not be there,life will not come to complete normalcy. Moreover, many sectors would be facing the demandconstraints, supply chain disruption, and input supply problem. Most of the industries wouldface labour scarcity, as migrant workers are coming back to their native places. Some sectorsmay achieve normalcy in the third quarter due to harvest of Kharif and rise in purchase power.The fourth quarter may see some growth. We have assumed that wherever (sectors) there isscope, the fourth quarter may witness growth that of the previous year. Table 4 and Table 5show the assumptions on the capacity utilization in different sectors in four quarters of 2020-21under scenario 1 and scenario 2. Scenario 2 is a more pessimistic scenario. In this we assumethat even the third quarter of 2020-21 may not be fully normal and the fourth quarter may notsee any growth in most of the sectors. Figure 1 shows the quarterly growth rates of GVA under scenario 1 and 2. Figure 2, 3 and4 show the quarterly growth of primary, secondary and tertiary sectors under scenario 1 andscenario 2. Table 2 shows the GVA estimates for 2019-20 and Table 3 shows the quarterlygrowth rates for the year 2019-20. We estimate a 2.3% real growth in 2019-20. Table 6 presentsthe quarterly estimates of GVA in 2020-21 under scenario 1 and Table 7 presents the quarterlygrowth rates of GVA in various sectors and total GVA under Scenario 1. We estimate a 23percent contraction in the GVA in 2020-21. Table 8 presents the quarterly estimates of GVAfor 2020-21 under scenario 2 and Table 9 presents the quarterly growth rates of GVA underscenario 2. Under scenario 2 we estimate a 25 percent contraction of GVA.
The prolonged lock down in India has a huge economic cost. Although different agencies haveestimated a positive growth for India in 2020-21, we differ with this. Our estimates suggest thatIndian economy is set to witness a major slump in 2020-21 to the tune of 23 to 25 percent. Thisis due to nearly complete suspension of all economic activities in the first quarter and possibledisruption of productions in the subsequent quarters owing demand and supply bottlenecks,disruptions in the input supply, output supply chain and labour shortages.
Quarter
Q1 Q2 Q3 Q4 Total
Agriculture, Forestry and Fishing 439248 366429 609105 486094
Mining & Quarrying 92777 69890 85429 107147
Manufacturing 574411 577184 559335 579744
Electricity, Gas, Water Supply & Other Utility 81628 79525 72817 65052
Construction 263653 244863 260170 243097
Trade, Hotels, Transport, Communication and Broadcasting 644224 621153 645479 635517
Financial, Real Estate and Professional Services 810500 873813 643389 587109
Public Administration, Defence and Other Services 421191 461487 474947 433359
Total Gross Value Added at Basic Price 3327632 3294343 3350669 3137119
Table 3: Quarterly and Annual Growth Rate in 2019-20. Source (Author’s Estimation)
Quarter
Q1 Q2 Q3 Q4 Total
Agriculture, Forestry and Fishing 2.8% 3.1% 3.5% 0.0% 2.3%Mining & Quarrying 4.7% 0.2% 3.2% -6.0% 0.0%Manufacturing 2.2% -0.4% -0.2% -6.0% -1.2%Electricity, Gas, Water Supply & Other Utility 8.8% 3.9% -0.7% -6.0% 1.7%Construction 5.5% 2.9% 0.3% -6.0% 0.6%Trade, Hotels, Transport, Communication and Broadcasting 5.7% 5.8% 5.9% -6.0% 2.6%Financial, Real Estate and Professional Services 6.9% 7.1% 7.3% -6.0% 4.2%Public Administration, Defence and Other Services 8.7% 10.1% 9.7% -6.0% 5.3%Total Gross Value Added at Basic Price 5.4% 4.8% 4.5% -5.1% 2.3%
Table 4: Scenario 1 - Assumptions on the Capacity Utilisation in different major sectors fourquarters during 2020-21 (Author’s Estimation)Quarter
Q1 Q2 Q3 Q4
Agriculture, Forestry and Fishing 0.75 0.75 1.00 1.03Mining & Quarrying 0.25 0.50 1.00 1.05Manufacturing 0.25 0.50 1.00 1.02Electricity, Gas, Water Supply & Other Utility 0.50 0.75 1.00 1.09Construction 0.25 0.50 1.00 1.06Trade, Hotels, Transport, Communication and Broadcasting 0.25 0.50 0.75 1.00Financial, Real Estate and Professional Services 0.50 0.75 1.00 1.07Public Administration, Defence and Other Services 0.80 1.00 1.00 1.004able 5: Scenario 2 - Assumptions on the Capacity Utilisation in different major sectors fourquarters during 2020-21 (Author’s Estimation)Quarter
Q1 Q2 Q3 Q4
Agriculture, Forestry and Fishing 0.75 0.75 1.00 1.03Mining & Quarrying 0.25 0.50 0.75 1.00Manufacturing 0.25 0.50 0.75 1.00Electricity, Gas, Water Supply & Other Utility 0.50 0.75 1.00 1.09Construction 0.25 0.50 0.75 1.00Trade, Hotels, Transport, Communication and Broadcasting 0.25 0.50 0.75 1.00Financial, Real Estate and Professional Services 0.50 0.75 1.00 1.07Public Administration, Defence and Other Services 0.80 1.00 1.00 1.00Table 6: Scenario 1 - Quarterly GVA in Major Sectors of Indian Economy during 2020-21 in LakhCrore INR. (Author’s Estimation)
Quarter
Q1 Q2 Q3 Q4 Total
Agriculture, Forestry and Fishing 329436.00 274821.75 609105.00 500676.82 1714039.57Mining & Quarrying 23194.25 34945.00 85429.00 112182.74 255750.99Manufacturing 143602.75 288592.00 559335.00 592498.43 1584028.18Electricity, Gas, Water Supply & Other Utility 40814.00 59643.75 72817.00 70776.31 244051.06Construction 65913.25 122431.50 260170.00 256467.50 704982.25Trade, Hotels, Transport, Communication and Broadcasting 161056.00 310576.50 484109.25 635517.08 1591258.83Financial, Real Estate and Professional Services 405250.00 655359.75 643389.00 628206.59 2332205.34Public Administration, Defence and Other Services 336952.80 461487.00 474947.00 433358.80 1706745.60Total Gross Value Added at Basic Price 1506219.05 2207857.25 3189301.25 3229684.28 10133061.83
Table 7: Scenario 1 - Growth of GVA in 2020-21 (Author’s Estimation)Quarter
Q1 Q2 Q3 Q4 Total
Agriculture, Forestry and Fishing -25% -25% 0% 3% -10%Mining & Quarrying -75% -50% 0% 5% -28%Manufacturing -75% -50% 0% 2% -31%Electricity, Gas, Water Supply & Other Utility -50% -25% 0% 9% -18%Construction -75% -50% 0% 5% -30%Trade, Hotels, Transport, Communication and Broadcasting -75% -50% -25% 0% -38%Financial, Real Estate and Professional Services -50% -25% 0% 7% -20%Public Administration, Defence and Other Services -20% 0% 0% 0% -5%Total Gross Value Added at Basic Price -55% -33% -5% 3% -23%5able 8: Scenario 2 - Quarterly GVA in Major Sectors of Indian Economy during 2020-21 in LakhCrore INR. (Author’s Estimation)
Quarter
Q1 Q2 Q3 Q4 Total
Agriculture, Forestry and Fishing 329436 274821.8 609105 500676.8 1714040Mining & Quarrying 23194.25 34945 64071.75 107146.8 229357.8Manufacturing 143602.8 288592 419501.3 579744.1 1431440Electricity, Gas, Water Supply & Other Utility 40814 59643.75 72817 70776.31 244051.1Construction 65913.25 122431.5 195127.5 243097.2 626569.4Trade, Hotels, Transport, Communication and Broadcasting 161056 310576.5 484109.3 635517.1 1591259Financial, Real Estate and Professional Services 405250 655359.8 643389 628206.6 2332205Public Administration, Defence and Other Services 336952.8 461487 474947 433358.8 1706746Total Gross Value Added at Basic Price 1506219 2207857 2963068 3198524 9875668
Table 9: Scenario 2 - Growth of GVA in 2020-21 (Author’s Estimation)Quarter
Q1 Q2 Q3 Q4 Total
Agriculture, Forestry and Fishing -25% -25% 0% 3% -10%Mining & Quarrying -75% -50% -25% 0% -35%Manufacturing -75% -50% -25% 0% -38%Electricity, Gas, Water Supply & Other Utility -50% -25% 0% 9% -18%Construction -75% -50% -25% 0% -38%Trade, Hotels, Transport, Communication and Broadcasting -75% -50% -25% 0% -38%Financial, Real Estate and Professional Services -50% -25% 0% 7% -20%Public Administration, Defence and Other Services -20% 0% 0% 0% -5%Total Gross Value Added at Basic Price -55% -33% -12% 2% -25%6igure 1: Quarterly Growth of GVA during 2019-20 and 2020-21 under Scenario 1 and Scenario (a) Scenario 1 (b) Scenario 2
Figure 2: Quarterly Growth of GVA in Primary Sector during 2019-20 and 2020-21 (a) Scenario 1 (b) Scenario 2
Figure 3: Quarterly Growth of GVA in Secondary Sector during 2019-20 and 2020-217 a) Scenario 1 (b) Scenario 2
Figure 4: Quarterly Growth of GVA in Tertiary Sector during 2019-20 and 2020-218 eferences [1] IMF.
World Economic Outlook, April 2020: The Great Lockdown , 2020 (accessed May 10,2020).[2] The Economic Times. Fitch ratings sees india growth slipping to 0.8% in fy21, 2020 (accessedMay 10, 2020).[3] C. Rangarajan and D. K. Srivastav. Slower growth and a tighter fiscal, 2020 (accessed May10, 2020).[4] The Economic Times. Adb expects india gdp to slip to 4 pc in 2020-21; projects strongrecovery next fiscal, 2020 (accessed May 10, 2020).[5] The Economic Times. Lockdown pulls down power consumption by 22.75% to 85.05 bu inapril, 2020 (accessed May 10, 2020).[6] The Economic Times. Core sector output shrinks 6.5on the economy, 2020 (accessed May10, 2020).[7] CMIE. Net direct tax collection up 36.5% in april 2020, 2020 (accessed May 10, 2020).[8] Nirbhay Kumar. Precipitous 80-90% fall in states’ april gst collections; centre may seemassive drop, 2020 (accessed May 10, 2020)., 2020 (accessed May 10,2020).[2] The Economic Times. Fitch ratings sees india growth slipping to 0.8% in fy21, 2020 (accessedMay 10, 2020).[3] C. Rangarajan and D. K. Srivastav. Slower growth and a tighter fiscal, 2020 (accessed May10, 2020).[4] The Economic Times. Adb expects india gdp to slip to 4 pc in 2020-21; projects strongrecovery next fiscal, 2020 (accessed May 10, 2020).[5] The Economic Times. Lockdown pulls down power consumption by 22.75% to 85.05 bu inapril, 2020 (accessed May 10, 2020).[6] The Economic Times. Core sector output shrinks 6.5on the economy, 2020 (accessed May10, 2020).[7] CMIE. Net direct tax collection up 36.5% in april 2020, 2020 (accessed May 10, 2020).[8] Nirbhay Kumar. Precipitous 80-90% fall in states’ april gst collections; centre may seemassive drop, 2020 (accessed May 10, 2020).