The first advanced estimates of the national income released by the National Statistical Office (NSO) have come on expected lines with a projected contraction of GDP by 7.7 per cent. The figure has not come as a major shock to the markets given the overall economic slowdown in the entire world due to the coronavirus pandemic. India’s economy was also among the worst-hit due to the virus outbreak and subsequent long lockdown.
In fact, the contraction of 7.7 percent is for the first eight months thus leaving a huge scope for improvement in the second half of the year. First advanced estimates provide an initial opportunity to the Government to focus on the broad contours of the Union Budget
and urgent corrections needed in sectors under contraction.
After several quarters of contraction due to the COVID-19 pathogen the advanced estimates were bound to see a marginal drop in the overall projection. The contraction of 7.7 percent was pegged after extrapolation of sector-wise indicators including industrial production, financial performance of listed companies in private sector, passenger, cargo and freight handled by Railways, civil aviation and sea ports, vehicle sales etc. for first eight months of the financial year.
All the sectors were badly hit by the lockdown and social distancing norms in place. The economy contracted by almost 24 per cent in the first quarter and by 15.7 per cent during the first half of the year.
It resulted in the domestic economy entering a technical recession. Hence the estimate of GDP contraction. The GDP estimates have some key takeaways, too, that will help the Finance Ministry in preparing the Budget for 2021-22. Biggest of the positives is the steady growth in various sectors of critical importance in the second half. There is a greater belief that the second half will match similar periods of previous years.
This will help in reducing the contraction number and providing impetus to lagging sectors like consumer spending. The sectors most hit during this year were trade, transport, tourism, communications, mining and construction.
With momentum to activities in transport and real estate the numbers are bound to improve in the last quarter before Budgetary provisions are made for ailing sections of economy. Real estate is set to play the role of a gamechanger after the sops introduced in various forms for construction business in the stimulus package.
It will have cascading effect on other allied sectors. The Government’s focus on increasing spending by consumers and subsidies like Prime Minister Aawas Yojana (PMAY) have also marked an uptick in completion of unfinished housing projects and booking for affordable homes by buyers.
According to real estate experts the construction sector is expected to grow at 4.4 per cent in the second half after shrinking by almost 30 per cent in the first half. All these are indicators of a change in economic trajectory in the coming months.
The second estimate coming in February will shed more light on the improving situation and help the Finance Ministry in incorporating plans in accordance with the changing scenario. Manufacturing, production, tourism are the areas that need more focus considering their key contribution in the overall economic scenario. Tourism is likely to remain affected after the restrictions put in place in view of the new strain of virus.
However, with transport and communication adopting the old normal, return of migrant work force has picked up thus giving big impetus to the production and manufacturing sectors. These estimates have data for only first eight months and are sure to be revised in the coming months.
A big fillip has come through the emergency use approval to two coronavirus vaccines. The vaccine roll-out will also help in a major push to the economic activities. The fourth quarter is likely to see a robust growth, perhaps stronger than what is being projected. It will
take time to come out of the first half blues but economic growth was always a game of patience!