GDP likely to contract by 7.7% in 2020-21, says Govt.

News: National Statistical Office(NSO), Ministry of Statistics and Programme Implementation(MoSPI) has released the First Advance Estimates (FAE) for 2020-21.

Facts:

• What are the First Advance Estimates(FAE)? For any financial year, the MoSPI provides regular estimates of GDP. The first such instance is through the FAE. The FAE for any particular financial year is typically presented on January 7th.
• Significance: FAE significance lies in the fact that they are the GDP estimates that the Union Finance Ministry uses to decide the next financial year’s Budget allocations.
• Based on: The FAE are based on the benchmark-indicator method. The sector-wise estimates are obtained by extrapolation of indicators like:
  • Index of Industrial Production(IIP) of first seven months of the financial year
  • Financial performance of listed companies in the private corporate sector available up to quarter ending September,2020
  • First Advance Estimates of crop production
  • Accounts of Central and state governments
  • Information on indicators like deposits and credits, passenger and freight earnings of Railways, passengers and cargo handled by civil aviation, cargo handled at major sea ports, sales of commercial vehicles available for the first eight months of the financial year.

Key Takeaways:

• GDP: India’s real GDP (Gross Domestic Product) is estimated to contract by 7.7% in 2020-21, compared to a growth rate of 4.2% in 2019-20.India will witness a negative GDP growth rate for the first time after 1979-80.
  • Reason: The reason for the contraction has been the disruption caused by Covid-induced lockdowns which saw the economy contract by almost 24% in the first quarter and by 15.7% during the first half of the year.
• Gross Value Added(GVA): It provides a picture of the economy from the supply side. It maps the value-added by different sectors of the economy such as agriculture, industry and services. The real GVA will also shrink by 7.2%.
• Positive Growth: Just two sectors are estimated to record positive growth in GVA this year with Agriculture continuing its strong run through the first half of year to the second half (3.4%) and Electricity, Gas, Water Supply & Other Utility services(2.7%).
  • However, the sharpest decline in the pandemic-dented year is expected to be in the Services Sector.
• Private Final Consumption Expenditure (PFCE): The biggest demand for goods and services comes from private individuals trying to satisfy their consumption needs. This demand is called PFCE and it constitutes over 56% of the total GDP. It is expected to be almost what it was in 2017-18.
• Gross Fixed Capital Formation (GFCF): The second biggest component of GDP is called GFCF and it measures all the expenditures on goods and services that businesses and firms make as they invest in their productive capacity. This type of demand accounts for close to 28% of India’s GDP. It has fallen below the 2016-17 level.
• Government expenditure: It is expected to show a robust growth of 17% in the second half of the year, despite the challenges faced by the government on fiscal consolidation and the fact that government expenditure fell 3.9% in the first half of the year.

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