Five pointers that make Friday’s GDP data hard to miss

Amid a sharp debate between the pro- and anti-lockdown camps, the size and nature of the fight on India’s hands will become clear tomorrow when the government releases the GDP data for the January-March quarter and the full FY20.

CRISIL estimates Q4 GDP growth at 0.5 per cent while ICRA has forecast the economy to grow at 1.9 per cent in the same period.

A Reuters poll of 52 economists points to GDP growing at 2.1 per cent, its weakest in at least eight years.

All macroeconomic indicators so far project a sombre picture for the economy. Among economists, there’s a consensus that India is likely to register a negative growth in the current fiscal. The only difference in opinion is the extent to which it could contract.

Even as India recovers from a crippling lockdown, it’s hard to say how long it will take before the economy gets back to pre-Covid levels of production.

Here are five key areas which, after tomorrow’s data, will likely mark the onset of what could be a very dismal year in terms of economic indicators.

Manufacturing

Reviving manufacturing has been one of the biggest challenges before the Modi government. Weak manufacturing growth has chipped away at India’s export potential, leading to — among other things — lower than expected employment generation.

The pain in the manufacturing sector was visible all through the last fiscal. Manufacturing growth contracted by 0.2 per cent in the October-December period pulling down the GDP to 4.7 per cent, the lowest in 27 quarters. Manufacturing was already struggling but the Covid-19 pandemic brought it to a standstill.

A disaggregation of the Index of Industrial Production (IIP) data for March will show that manufacturing sank by a staggering 20 per cent. The manufacturing PMI slipped to 51.8 in March from 54.5 in February on the back of slowing exports and domestic demand . In April, it dropped to 27.4, its lowest ever as the country was put under strict curbs.

Jobs

The unemployment scenario worsened from March onwards as the country was put under a strict lockdown. Data from private forecaster CMIE showed that unemployment rate fell from 8.75 per cent in March to a staggering 23.5 per cent in April.

In the month of April alone, 122 million Indians lost their jobs. Among them, as per CMIE data, were 27 million youth in the age group of 20-30 years — a dire employment scenario, indeed.

Moreover, a large migrating workforce from industrial centres back home poses a risk to restarting the economy. Labour participation rate has also taken a hit. With almost 90 per cent of the country’s workforce employed in the informal sector, the situation could be far worse as the informal economy has taken the most severe beating owing to Covid-19.

Industrial activity

In a sign of how painful the first quarter of FY21 will be, India’s industrial activity as represented by Index of Industrial Production (IIP) contracted by a record 16.7 per cent in March just when the country had entered a strict lockdown to clamp down on the spread of the novel coronavirus.

Consumer durables, which was already struggling due to the slowdown in the economy, declined by a massive 33 per cent indicating that urban demand had suffered the most. The RBI Governor, Shaktikanta Das, in his address last week underlined that private consumption has been the hardest hit.

Capital goods growth, a marker of investment in the economy, contracted the most falling by 35 per cent. The bleak data for March is set to pull down the economic growth for the fourth quarter of FY20 that will be out tomorrow.

Core sector

Key infrastructure industries showed a decline of 6.7 per cent in March, lowest in at least 15 years going back to the previous series with base year of FY05. The index was pulled down by a broad based contraction witnessed in seven out of the eight core sectors of the economy.

The biggest fall was seen in cement output as it slumped by a massive 25 per cent reflecting how severely the construction activity has been impacted. Natural gas output fell 15 per cent followed by steel output declining 13 per cent and electricity by 7 per cent.

The core sector industries are likely to see a further decline in the first quarter of FY21 as construction activity came to a standstill and electricity demand suffered due to nationwide curbs.

Exports

Exports, which will have to be a key if India were to gain a dominant position in the global supply chain some day, showed some of the bleakest signs. Indian merchandise exports slumped by 60 per cent in April, lowest in 25 years reflecting the sombre sentiment globally amid widespread lockdowns and cancellation of orders.

In March, the exports had fallen by 34.5 per cent. The WTO has projected that world trade could fall between 13 per cent and 32 per cent in 2020.

A recovery in exports depends on how quickly some of the advanced economies and major export markets come out of the cluthches of the pandemic. Declining exports will shave off growth in the economy further that’s likely to suffer its worst recession so far.