Economy

COVID-19: New assessment pegs 25% GDP slide for April-June

Expects industrial output to halve; inflation may shoot up

 
By Shagun Kapil
Last Updated: Tuesday 09 June 2020
India’s gross domestic product may shrink up to a quarter between April and June 2020 from a year ago Photo: Vikas Choudhary

India’s gross domestic product may shrink up to a quarter between April and June 2020 (quarter one) from a year ago, according to a recent assessment. Most sectors, except agriculture, will see heavy disruption — possibly even into the next financial year, according to the National Council of Applied Economic Research (NCAED).

It presented its assessment in a video conference conducted by the International Labour Organisation, the Indian Society of Labour Economics and the Institute of Human Development (IHD) on June 8, 2020.

India’s unemployment rate has already been pegged at 24 per cent (April-May) by independent think tank Centre for Monitoring of Indian Economy.

The assessment comes amid the nationwide lockdown to curb the spread of the novel coronavirus disease (COVID-19) that halted economic activity, leading to an economic downturn.

The assessment expected industrial production to decline 54.3 per cent in the quarter.

It pegged the agriculture sector to grow at 3 per cent. The services sector will see a decline of 16 per cent. Hotels and transportation were the most-affected, contributing to 62 per cent of the services sector’s overall decline.

Experts said a gradual recovery in some sectors was expected, but only by the financial year end.

This, however, meant no growth, according to Sudipto Mundle, Distinguished Fellow at the NCAED.

“The industries and service sectors, for example, are expected to recover slowly and will be back to where they were at the beginning of this year by the end of 2020-21, which means zero growth,” he said.

The assessment developed four scenarios after conducting model simulations with different supply side constraints. The scenarios — with fixed fiscal expenditure and monetary stimulus — reflect different levels of supply response:

Scenario 1

The country ends up with zero growth and 5.5 per cent inflation.

Scenario 2

If supply side is more constrained, there will be a decline of two per cent GDP growth, with inflation at 6.4 per cent.

Scenario 3

There will be five per cent decline in GDP growth, with inflation at 6.7 per cent.

Scenario 4

This is the worst-case scenario, with a decline of 10 per cent in GDP and inflation at 7.8 per cent.

The actual outcomes were likely to lie in the range of GDP decline of 5 and 2 per cent, said Mundle. “The best we can hope is zero growth or zero decline in output. There is a need to put money in the hands of people right now,” he added.

An assessment of the economy vis-a-vis reverse migration suggested it may lead to sector and area-specific demand-supply mismatches for labour as industry slowly revives.

About 60 per cent circular migrants were back in their home states, with only 10 per cent who used official transport, with most paying for it, said Ravi Srivastava from IHD.

“So, apart from short-term requirements to boost employment and food support, there is an urgent call now for regionally balanced growth,” he said. “For restructuring labour markets, we need steps to formalise migrant workers with registration, job security and better working conditions,” Srivastava added.

Subscribe to Weekly Newsletter :

Comments are moderated and will be published only after the site moderator’s approval. Please use a genuine email ID and provide your name. Selected comments may also be used in the ‘Letters’ section of the Down To Earth print edition.