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India’s GDP contracted by 7.3% in the financial year 2020-21 indicating deep erosion in the economic activity due to pandemic. Of course, it was expected as two months in the last fiscal witnessed total nationwide lockdown and the country was unlocked in a phased manner. The NSSO estimated 8% contraction, while the RBI pegged it at 7.5%. However, the actual contraction remains at 7.3%, thanks to a slight recovery in the last quarter.
In January- March 2021, the Q4 of the last fiscal, India’s GDP grew by 1.6 percent. Even this is a much lower level as the Q4 of the previous year posted a GDP growth rate of 3 percent. This implies that the COVID-induced economic downturn continued even after the economy opened up to a large extent. As India is in the grip of the second wave in the first quarter of the new fiscal, imminent economic recovery seems most unlikely.
However, the economic slowdown began much before the pandemic. India’s growth rate has been slipping since 2016-17 when it stood at 8.3%. In the subsequent years, it fell to 7 percent in 2017-18, 6.1% in 2018-19, and 4% in 2019-20 before it plummeted to -7.3 in 2020-21. The demonetization, faulty implementation of GST have been showing an adverse impact on the Indian economy. The pandemic has brought the country into a further economic abyss with GDP contraction at a level not seen in the last 40 years. Indian economy contracted by 5.2 percent in 1979-80. Since then India’s growth rates were never in negative territory.
India’s total GDP as per the latest estimates stood at Rs.145.69 lakh crores in 2019-20. It fell to Rs.135.13 lakh crores in 2020-21. Thus, India should grow at the rate of 10 percent in the current fiscal 2021-22 to regain the level attained in 2019-20. Given the raging second wave, this also seems unlikely despite a low base.
Even as India’s economic growth slipped to a historic low, the corporate profits zoomed. The combined net profit of the listed companies was up 57.6 percent to Rs 5.31 lakh crores in FY21. As a result, the corporate profit share in India’s gross domestic product (GDP) hit a 10-year high of 2.63 percent in the last financial year. The ratio was at a record low of 1.6 percent in FY20.
Thus, as India lost, corporate India gained, indicating the iniquitous adverse impact of the pandemic.
By Prof K Nageshwar
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