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LATEST NEWS UPDATES | An Expert Explains: Decoding GDP contraction --Neelkanth Mishra

An Expert Explains: Decoding GDP contraction --Neelkanth Mishra

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published Published on Sep 7, 2020   modified Modified on Sep 7, 2020

-The Indian Express

The contraction seen in first-quarter GDP data is severe, but not unexpected. What should be done — or not done – at the level of govt policy so that the economy gets a chance to rebound as quickly as possible?

* How should one read the first-quarter GDP data and the contraction by 23.9%? What signal does it offer for the future? And does it give any idea of the sectors that the government must prioritise?

Compared to the first quarter of last year, the income split showed growth in agriculture, minor declines in financial services, utilities (like electricity and water) and public administration, and major declines in retail, transportation, manufacturing, hotels, and construction.

The expenditure split showed growth in government spending, private consumption was down by a quarter, and investments nearly halved. On both fronts there was little surprise in the GDP release.

The quantum of decline seems to have surprised many, but it should not have.

The first lockdown curtailed nearly two-thirds of GDP, and while this proportion came down in subsequent phases, till the end of May activities adding up to nearly a fifth of GDP were still restricted. Even in August, we estimate, up to 9 per cent of GDP was restricted either by regulation or fear.

While the economic trajectory going forward would be affected by the wealth and income losses seen in the past five months, the decline in the June quarter was almost entirely due to activity restrictions. Now that there is an official measure, however inaccurate, of the scale of losses, the first priority should be to remove as many of these restrictions as possible.

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The Indian Express, 7 September, 2020, https://indianexpress.com/article/explained/decoding-gdp-contraction-economy-rbi-6585775/


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