By TV Mohandas Pai and Nisha Holla
As a result of the pandemic, most analysts believed that the economy would contract between 8% and 10% in real terms due to the total and partial blockage in the first and second quarters of fiscal year 21, respectively. However, as growth accelerated in the second quarter, some revised it up to a 7.5% decline. Preliminary estimates show a 7.3% contraction, from real GDP of Rs 145.7 million in FY20 to Rs 135.1 million in FY21. In nominal terms, GDP declined from 203 Rs 5 crore in fiscal year 20 to Rs 197.5 crore lakh in fiscal year 21, a contraction of 3%. Nominal GDP per capita plummeted 4%, from Rs 1.52 lakh in FY20 to Rs.146 lakhs in FY21. Analyzing the budget in nominal terms gives a better indication of what happened, since which reflects the prices that people experience and transact with today.
A close look at the breakThe decline in nominal GDP highlights changes in three essential components:
– Private Final Consumption Expenditure (PFCE) decreased from Rs 123.1 million lakh (to 60.5% of GDP) in FY20 to Rs 115.7 million (to 58.6% of GDP) in fiscal year 21 as consumption declined due to the lockdown in fiscal year 21. This decrease in PFCE is crucial as the growth of the Indian economy is highly dependent on domestic consumption.
– Government Final Consumption Expenditure (GFCE) increased from Rs 22.9 million lakh crore (to 11.2% of GDP) in fiscal year 20 to Rs 24.7 million lakh crore (to 12.5% of GDP) in fiscal year 21. This equates to an increase of Rs 1.8 lakh crore – less than the increase of Rs 2.5 lakh crore between FY19 and FY20. It is necessary to examine the precise impact of the (higher) public spending in fiscal year 21.
– Gross fixed capital formation (GFCF), which represents the aggregate capital investment in the country, also decreased from Rs 58.5 lakh crore (to 28.8% of GDP) in fiscal year 20 to Rs 53.5 lakh crore (to 27.1% of GDP) in fiscal year 21.
Both private consumption and capital investment decreased due to the closing in the first and second quarters of fiscal year 21.
A closer look at the composition of nominal GVA reveals which sectors were most affected by the lockdown in fiscal year 21. Agriculture is the only sector that posted positive growth of 6.5%, down from Rs 33.9 lakh crore in FY20 to Rs 36.2 lakh crore in FY21. This is a direct result of keeping the rural economy open during the first wave, allowing farmers to harvest the record rabi crop, plant and harvest the kharif crop, and benefit from various schemes, including PM-KISAN.
Manufacturing declined by 4.6%, from Rs 27.1 lakh crore in FY20 to Rs 25.9 lakh crore, a direct consequence of the closure of factories and a dramatic reduction in trade. SwindleConstruction fell by 6.4%, from Rs 13.7 lakh crore in FY20 to Rs 12.8 lakh crore in FY21, leading to higher unemployment. The pandemic also directly affected retail, hospitality and travel, as evidenced by the steep 15.5% drop in GVA. of the services subsector made up of Commerce, Hotels, Transportation and Communicationsions: from Rs 34.8 lakh crore in FY20 to Rs 29.4 lakh crore in FY21. This subsector was one of the main victims of the lockdowns, resulting in massive job losses. scale; is yet to recover.
Another important services subsector is financial, real estate and professional services, which grew marginally by 1%. because, in general, this subsector grows at 7% + and the 6% + growth difference is a significant loss. Lastly, net taxes decreased by just 3%, indicating that the taxpaying sector was not unduly affected by the pandemic and the shutdown.
Analysis of quarterly nominal GDP growth shows that the economy was gaining momentum after the lockdown in the first quarter and partially in the second quarter of fiscal 2020. The accompanying graph shows the quarterly GDP for the last three years. Q1FY20 GDP grew by 9.6% during Q1FY19, the highest growth percentage change compared to the other three quarters, indicating that Q1FY21 growth would have accelerated as well, had it not been for the pandemic and the national shutdown. The first quarter of fiscal year 21, on the other hand, registered a decrease of 22.3% compared to the first quarter of 2020.
The decline slowed significantly in the second quarter, at -4.4% compared to the second quarter of fiscal 2020, as locks eased and businessnests and manufacturing were back online. As a result, Q3FY21 entered full swing, registering a growth of 5.2% during Q3FY20, considerably close to the 6.5% of the Q3FY20 registered during Q3FY19. The momentum allowed Q4FY21 to reach 8.7% compared to Q4FY20, the same as the percentage change of Q4FY20 compared to Q4FY19. The year-end momentum is corroborated by the all-time highest GST collections of Rs 1.41 lakh crore in April 2021 for sales in March 2021. Similarly, the corporate sector, which saw a decline in Revenue in the first quarter of fiscal 21, rebounded to record all-high earnings over time in the second quarter, once again in the third quarter, topping this in the fourth quarter.
The Indian economy was heading back towards the second half of FY21 and robust estimates were made for economic growth in FY22. Estimates of real GDP growth were in the range of 10-12.5%, which which translates to 14-16.5% in nominal terms to include inflation. However, Due to the second wave and local lockdowns, the first quarter of fiscal 22 will again post a down quarter, and the second quarter will see some recovery with a gradual unlock. Growth estimates have now been lowered to 7.5-10%. Quarterly GDP estimates, sectoral GVA breakdown, and consumption and capital investment trends show the main levers of the economy.
The high growth requirement of Fiscal Year 22, with substantial job creation to counter large-scale job losses caused by the pandemic, can be met by focusing on these. However, much relies on urgent government stimulus to boost consumption, manufacturing, construction, and job creation. A monetary stimulus will no longer be effective; A fiscal package is the only way to ensure that fiscal year 22 shows healthy growth.
(Pai is President, Aarin Capital, and Holla is Technology Fellow, C-CAMP. Opinions expressed are his and not necessarily those of Financial Express Online)