GDP: Why India’s growth rate is shrinking rapidly?

India’s economy posted the biggest contraction among major economies last quarter, with a recent surge in coronavirus infections weighing on the outlook for any recovery.

Gross domestic product shrank 23.9% in the three months to June from a year earlier, the Statistics Ministry said in a report Monday. That’s the sharpest decline since the nation started publishing quarterly figures in 1996, and was worse than any of the world’s biggest economies tracked by Bloomberg. The median estimate in a survey of economists was for an 18% contraction.

Once the world’s fastest-growing major economy, India is now on track for its first full-year contraction in more than four decades. While there are early signs that activity began picking up this quarter as lockdown restrictions were eased, the recovery is uncertain as India is quickly becoming the global epicenter for virus infections.

Economists had anticipated the economy shrinking anywhere between 15-25% while an ET Now Poll projected Q1FY21 GDP at -19% YoY.

As largely expected, agriculture was the only silver lining among all sectors as it grew by 3.4% in the April-June quarter.  

Manufacturing, construction and trade (hotels, transport, communication & services related to broadcasting) shrank by 39.3%, 50.3% and 47% during the quarter. Interestingly, governmetn expenditure during the quarter also contracted by 10.3% as per NSO figures.   

Let us find the reasons in this article that what are the reasons behind the decline in the Indian GDP

1. Sharp decline in overall demand:

Increment in the employment opportunities leads to further demand of the other products in the economy. Since last few months Indian economy is facing the problem of lower demand which ultimately trapped the whole economy.

2. Sharp fall in consumption

Consumption has accounted for 55-58% of GDP. Remember consumption is at the core of domestic demand in India. Indian economy experienced a sharp decline in private final consumption expenditure from 7.2% in the March quarter to 3.1% in the June.

3. Decline in investment

The value of declared investments in the same quarter is Rs 71,337 crore, which is also the lowest since September 2004. This is a big indication that industries are not yet confident in India’s economic future.

4. Poor condition of banking sector

The recent announcement of the mergers of the banks may further create the atmosphere of anarchy in the mind of the investors and depositors.