Q4 GDP reveals a sorry picture even before the onset of lockdown

India’s economy is truly set to fall off a cliff, if the fourth-quarter growth figures are any indication. With just a week of the lockdown having been factored in, it is clear that the economy was already in free fall, with the fourth-quarter GDP growing by just 3.1 per cent, against 4.7 per cent in Q3. For 2019-20, growth by the CSO has been pegged at 4.2 per cent, against 6 per cent in the previous year — a telling indication, if any were needed, that the economy is in serious trouble. According to CRISIL, the Indian economy is expected to shrink 5 per cent in FY21, with a 25 per cent first quarter contraction. UBS Securities expects FY21 real GDP to contract 5.8 per cent, the lowest in four decades.

It seems like eons ago when the growth rate touched 8 per cent in 2016-17, a figure that raised quite a few eyebrows given the context of demonetisation and the constant changes in methodology. A fall by two percentage points in two years for an emerging economy is not a good sign at all, at a time when there were no compelling global factors at work to drag the Indian economy down. While structural changes such as the GST were working their way through the system, it is also a fact that investment appetite had tanked and the economy was reeling under a demand constraint. Now, with the impact of the coronavirus dragging the world economy into a recession that compares with the Great Depression of 90 years ago, the Indian economy needs a more convincing stimulus than what has been unveiled so far. One cannot easily take comfort from the Centre’s statement that exports will pick up next month, after crashing by 60 per cent in April. Even if the MSME package is to begin taking effect, early positives are hard to expect.

The latest CSO figures point unambiguously to the problem areas. Capital formation contracted by 2.8 per cent in FY20, compared with a 9.8 per cent rise in the previous financial. Private consumption expenditure rose by 5.3 per cent in FY20, compared to just over 7 per cent in 2018-19; for Q4, the rise was just 2.7 per cent against 6.6 per cent in the preceding quarter. The government will have to pick up the tab, at least till the effects of monetary policy start to take effect. It must inject money into the hands of people without further delay, while removing obstacles to spending by the States. Health and physical infrastructure spending can work better than supply-side measures at this stage.