Real GDP is estimated to show a contraction of 7.3% during 2020-21, as compared to four percent growth rate in 2019-20. In order to recoup the growth trajectory aggregate demand needs to be increased majorly through government expenditure on a massive scale.
Dr Manas R Das
The National Statistics Office announced the Provisional Estimates (PE) of national income for the Financial Year 2020-21 on May 31, 2021.
According to the estimates, real GDP (at 2011-12 prices) is estimated to show a contraction of 7.3% during 2020-21, as compared to the growth rate of four percent in 2019-20. RBI in its December 4, 2020, monetary policy statement had projected real GDP to grow by -7.5% in 2020-21.
Gross Value Added (GVA) at basic prices (at 2011-12 prices) is estimated to decline by 6.2% as against 4.1% growth achieved in 2019-20 (Chart 1).
Table 1 presents GVA growth rates as per the three constituting sectors. It may be observed that compared to 2019-20 all the sectoral growth rates are likely to decline in 2020-21 with industry and services in negative territory.
Table 1: 2020-21 Sector-wise GVA
Growth Rates – PE
|Agriculture, Forestry & Fishing||4.3%||3.6%|
Within ‘Industry’, ‘Mining & Quarrying’ and ‘Manufacturing’ are estimated to contract by 8.5% and 7.2% respectively, whereas ‘Electricity, Gas, Water Supply & Other Utility Services’ is likely to post a positive growth rate at 1.9%.
Within ‘Services’, growth rates for all the sub-sectors during 2020-21 are likely to stay in the negative zone led by ‘Trade, Hotels, Transport, Communication and Services related to Broadcasting’ at -18.2%, followed in succession by ‘Construction’ at -8.6%, ‘Public Administration, Defence and Other Services’ at -4.6% and ‘Financial, Real Estate & Professional Services’ at -1.5%.
Table 2 presents the expenditure side of GDP.
Table 2: 2020-21 Expenditures on Real GDP – SAE
|Private Final Consumption Expenditure (PFCE)||5.5%||-9.1%|
|Government Final Consumption Expenditure (GFCE)||7.9%||2.9%|
|Gross Fixed Capital Formation (GFCF)||5.4%||-10.8%|
Demand side analysis of GDP revealed that growth in PFCE during 2020-21, which accounts for over 56% of GDP, will likely remain in negative territory, implying continued weak demand conditions. GFCE growth rate, albeit positive, is estimated to remain low indicating inadequate public expenditure. Large contraction in GFCF or investment is not heartening.
Available indicators reveal that the Indian economy is, by and large, steady. However, the full impact of the second wave of Covid-19 is yet to be assessed. Nevertheless, the situation calls for boosting aggregate demand which only government expenditure on a massive scale can do, even though the deficits benchmarks are to be crossed. The accommodative stance of the monetary policy will help sustain the growth.
About the Author:
Dr. Manas R. Das is a former senior economist of State Bank of India. He has over 30 years of experience as an economist in two large commercial banks. Academically, he is a gold medalist in Bachelor of Arts with Economics Honours from Utkal University, followed by Master’s in Economics from Delhi School of Economics and Doctorate in Economics from Gokhale Institute of Politics and Economics. He is also a Certified Associate of the Indian Institute of Bankers. He has won several awards, besides being a prolific writer.