GDP: Is RaGa Right On Flaying Centre?
Former Congress President Rahul Gandhi today hit out at the Centre for 23.9 percent contraction of the Gross Domestic Product in India’s history.
“GDP reduces by 24%. The worst in independent India’s history. Unfortunately, the Govt ignored the warnings,” Gandhi tweeted.
Yes, the collapse of GDP growth by 23.9 per cent for April to June period is worst in independent India’s history, but it was expected, because of economic shutdown due to Covid lockdown and the mishandling of spread of coronavirus by China, which is Congress party’s benefactor.
In fact, EGROW Foundation Chairman Dr Arvind Virmani hinted that the Narendra Modi government did well in limiting the contraction of the GDP. He said the Q1 GDP estimate of -23.9 per cent by Central Statistics Office is better than the estimates made by him three months ago.
The estimates were made based on the logic of lockdown and sectors subject to it, he said. “The Q1 GDP est of -29% by CSO is better than my est of 3 months ago w/o any data, based only on the logic of lockdown & sectors subject to it,” Virmani tweeted.
He also stuck to his “FY21 estimates of -5 per cent taking into account 10 to 15 per cent error.”
Referring to his May 29 Facebook post, Dr Virmani said forecasting paradoxically becomes easy in some ways, if the nature and extent of the lockdown is understood.
Before understanding the estimate of the impact on Indian economy due to the pandemic, it is important to understand dynamics of agricultural and non-agricultural sectors plus allied sectors. The Indian lockdown had shut down the entire economy and society, except for Essential Goods and Services, of which the major part is agriculture and allied sectors, Dr Virmani wrote.
He said the agricultural sector of the economy, which constitutes 40 per cent of Gross Value Added (GVA) and employs about 55 percent of the workforce, has been functioning normally with little or no problems on either the supply or demand side, barring bureaucratic problems.
The rest of the economy, producing 60 per cent of the GVA and employing 45 per cent of workers has been shut down since the last week of March till the end of May. Thus, Dr Virmani said, there is no supply or effective demand in this part of the economy during this period.
“The one week shut lock down in March 2020 will reduce expected GDP for Q4 of FY20 by 0.6/13 and full year GDP by 0.3/26. Q4 GDP growth is therefore projected to be 0.6 per cent to 1.1 per cent, while 2019-20 GDP growth is projected to be 4 per cent to 4.5 per cent,” he wrote.
Similarly, the estimated effect of the lockdown during April and May 2020 will reduce Q1 GDP in FY21 by 1.2/3 and full year GDP by 1/10th in 2020-21. GDP growth in Q1 of FY21 is therefore projected to be around -35% year-on-year, Dr Virmani said.
However, he said, the whole year projection is a little more complicated because it requires a breakup of the non-essential part of the economy into contact services (air travel, hotels etc) and manufacturing, mining, construction and allied services.
The former constitutes 105 of GVA and employment, while the latter is 50 percent of GVA while employing 35 per cent of workers. “The Q1 GDP from Contact services is lost forever, and will recover much more slowly because of continued fears in the majority of our population,” Dr Virmani said.
In contrast, the GVA of MMC AS can be made up during the second half of the year, particularly in the last quarter. “I therefore project the overall GDP growth during 2020-21 to be -5 per cent to -1.5 per cent, unless an unexpected cure or vaccine is discovered for Covid19, before the end of FY21,” Dr Virmani said.
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