GDP of India shrinks to -23.9%, Cause and Impact

Indian ruling party has successfully distracted the attention of all Indians from all major concerns of India and which should be discussed. Our own Indian media will never talk about any topics like this, they don’t want us to know these facts and they will only broadcast useless news or Bollywood gossips to boost their rating. Now Indians are running behind PUBG ban, Rhea arrest, Kangana and so on. It’s time to open your eyes and ears and realize what is happening in front of you. You should realize the current situation of your country and analyze what is important and what is not. Our ruling party has successfully won the task of hiding all the major issues and made Indians to focus on these least priority issues as compared to another. India’s economy estimates contracted by 23.9% in the first quarter of this fiscal year, which is the worst in 40 years. Daily corona cases in India are above one lakh which is the highest daily count than any country. Unemployment crossed 27% in the month of May, No question hour in parliament monsoon sessions. Indians should discuss these issues and we all should know what is happening around us.

GDP of India Shrinks to -23.9%

The Modi Sarkar 2.0 launch does not look promising as the economy has not shown signs of improvement in many sectors, namely automobile, manufacturing, FMCG, banking and agriculture. In the month of August 2019; Real GDP growth fell to a six-year low of 5 in the first quarter of the current financial year, according to the Central Statistics Office (CSO).

GDP Growth(%) By Country

India's quarterly GDP for April and June was estimated at -23.9 percent year-on-years (YoY), the first GDP agreement in more than 40 years which is worse than other major countries. According to the National Statistical Office (NSO), the gross domestic product (GVA) has reached -22.8%. The global rating agency said India's GDP decline in the first quarter was one of the sharpest of all G-20's major economies. Moody's investors have predicted that India's real GDP will enter into a contract with 11.5 percent in the 2020-21 financial years, much weaker than its previous 4.0% contract limit.

India's GDP is expected to show strong tension as the Department of Statistics and Program Implementation (MoSPI) releases the first quarter data (April, May, June) of the current financial year on Monday, broadly agreeing that the decline will not exceed 20%. As it turns out, GDP gained 24% in Q1.  With GDP gaining more contracts than expected by many observers, it is now believed that full-year GDP could also be worse. Expected estimates would be an agreement of 7% for the full fiscal year. Services and mining were the worst hit sectors, the recurrence record of 50.3%, 39.3%, 47.0% and 23% respectively.

In any economy, GDP growth is generated from one of the four growth engines. Private use, corporate demand, government securities and exports Private corporate investment decreased by 47%. It is the second largest engine. Government spending has increased by 16% but this has not been enough to compensate for the loss of demand in other sectors (engines) of the economy. Private use has dropped by 27%. It is the largest engine that drives the Indian economy.

Cause of GDP fell in India

Reports say that the GDP fall is the effect of COVID-19 lockdown and it is recovering now, but the fall in economy was evident in the beginning of 2020. Since the estimates are taken in lockdown period, the actual number will be worse. The BJP is busy arguing that India has done better than other major countries like USA but the number doesn’t say so. Although in many countries the growth was a negative growth but in India it was -23.9% which is very high and very scary considering the impact of GDP contraction in India.

Key   Indicators	Q1 2019-20	Q2 2020-21
Passengers at Airport	-0.6	-94.1
Vehicle Sale	-9.5	-84.8
Cargo handled at Airport	-6.5	-57.2
Consumption of steel	5	-56.8
Production of Cement	1	-38.3
Railways, net tone km	0.7	-26.7
Cargo handled at Sea Port	1.7	-19.8
Production of Coal	2.6	-15
Total Telephone subscribers	1.5	-2

In India GDP is generated from four engines of growth. You and private individuals are the largest engine of demand consumption in the Indian economy, accounting for 56.4% of total GDP before this quarter. The second largest engine is the demand generated by private sector businesses and accounts for 32% of total GDP. In India. The third engine is the demand for government products and it accounts for 11% of India's GDP. The final engine is the net demand on GDP, because we deduct imports from India’s exports and since the smallest engine and India generally import more than exports, its impact on GDP is negative.

Indian GDP can be defined as the sum of four engines discussed above. Consumption is 55–58% of GDP. Keep in mind that consumption is a major factor in domestic demand in India. The Indian economy has seen a significant decline in private final consumption spending. Private consumption, the largest engine driving the Indian economy, fell by 27%. In monetary terms, the decline was Rs 5,31,803 crore compared to the same quarter last year. 

The second biggest engine in Indian GDP is investment by Business, which had a steep fall almost half of last year same quarter. There was a 79.5% reduction in the value of new projects announced from April to June 2019. This is the highest decline ever after September 2004. This is a major indication that industries are still not confident in the economic future of India. Third largest engine is export which actually shown a positive GDP growth.

The fourth engine of development is the government. As the data show, government spending has risen 16%, but it is nowhere to be found to offset the loss of demand in other sectors of the economy.

The Goods and Services Tax (GST) is a very encouraging step for the Indian economy but its implementation is not very smooth. Traders are having trouble getting GST revenue and their huge money is in the hands of the government, which is affecting their business due to limited availability of resources. The recent announcement of a bank merger could create an atmosphere of confusion in the minds of investors and depositors.

Impact of GDP fell in India

India has witnessed negative GDP growth of - 23.9% in the first quarter of this fiscal year.  Impact of GDP decline will be very high and it will affect each and every Indian directly or indirectly. The steep GDP decline shows that the market has slow down and there is no demand so no production so there will not be any money rolling happening thus slowing down the economy and at the end the situation will be worse. The economy has started taking inertia after the unlock has begin but the initiative from Government should be very high to help India from this situation. 

Many observers now believe that with GDP shrinking more than expected, even full-year GDP will weaken. The most traditional estimate is a 7% contraction for the entire fiscal year. Construction (-50%), trade, hotels and other services (-47%), manufacturing (-39%) and mining (-23%) were the most affected. It should be noted that these are the sectors that provide maximum employment in the country. Thus the rate of unemployment will rise in India,  so when production is not there companies will be forced to suspend or eliminate their employees which results in low income or no income so again consumption will reduce thus reducing production and increases unemployment. 

Read: Unemployment in India 2020

When incomes fall sharply, private individuals reduce their consumption. When private consumption falls sharply, businesses stop producing and investing. Since these are both voluntary decisions, there is no way in the current scenario to force people to invest more and / or ease outstanding businesses.  

In short the impact of GDP shrinks in India will be very high and economic researchers say that this will also impact the annual GDP rate. Government of India should take adequate measures to help Indian economy and creating more Jobs and also booting the economy movement in India.