Context

• Recently, the Ministry of Statistics and Programme Implementation (MoSPI) has released the data for the first quarter (April, May, June) of the current financial year which provided that the GDP contracted by 24% per cent in Q1.

Reasons for GDP Contraction

• The biggest engine driving the Indian economy is private consumption and it has fallen by 27%.
• The second biggest engine driving the Indian economy is investments by businesses which has fallen even harder and half of what it was last year same quarter.
• The government’s expenditure went up by 16% but this was nowhere near enough to compensate for the loss of demand (power) in other sectors (engines) of the economy.
• The contraction reflects the severe impact of the COVID-19 lockdown, which halted most economic activities, as well as the slowdown trend of the economy even pre-COVID-19.

Implications of GDP Contraction

• The GDP for the first quarter was more than what observers expected and it is believed that the full-year GDP could also worsen.
• Except for agriculture sector, all other sector witnessed contraction such as construction (–50%), trade, hotels and other services (–47%), manufacturing (–39%), and mining (–23%).
• The output and income fall in various sectors has led to to more and more people either losing jobs (decline in employment) or failing to get one (rise in unemployment).

Source: Indian Express