As per the advance GDP estimates released by the Central Statistics Office, the GDP is likely to contract by 7.7 per cent as against 4.2 per cent in the FY (Financial Year) 2020. This implies that the rebound in GDP growth in the second half (H2) of the FY21 is likely to be near zero as against -15.7 per cent in H1FY21. The real GVA (Gross Value Added) is expected to shrink 7.2 per cent in FY21 after 3.9 per cent growth in FY19, while nominal GDP is expected to contract 4.2 per cent as against 7.2 per cent in FY20 (budgeted 10 per cent in Feb 2020). Experts feel that the GDP advance estimates depict H2 growth pick up led by services and government spending. It is also expected that growth is likely to return to positive territory in Q4 of the FY21
Experts at Emkay Global Services feel that the services de-growth will most likely moderate to -1.1 per cent in H2 (Second Half) FY21 led by financial, insurance and real estate services. Public spending is expected to improve and will be another major growth contributor in the remainder of the year. However, advance GDP estimates have a short shelf life as they are mostly based on extrapolation of indicators available until November and are thus prone to major revisions.
CSO does the advance estimate of GDP ahead of the budget in order to help the government in evaluating the growth outlook and tax buoyancy for budgetary purposes. The Emkay report observes that lead indicators like IIP (Industrial Production Numbers) and PMI are already indicating a sequential recovery. Services is expected to record its first contraction ever at -8.8 per cent. It is being estimated that public administration services are also likely to improve in H2FY21 amid high expenditure, with a full year contraction of 3.7 per cent being more due to de-growth in H1 of the FY 21. Trade, hotels and transportation are likely to remain sluggish in FY21. As per expenditure side, government consumption is leading the pack. But barring for government consumption, all other heads on the expenditure side are estimated to have contracted. Specifically private consumption is estimated to contract 9.5 per cent in FY21.
Despite this contraction advance estimates hints at improvement in H2 FY21. Though the first advance estimates of GDP growth for FY21 is a tad lower than the RBI projection but it is more optimistic than the projections provided by many institutions, global and domestic. It is expected that the final GDP data will be slightly lower than the first advance estimates when the data for the informal economy is included and adjusted.
“While the investment and consumption demand data were expected to register a strong decline, the 5.8 per cent growth in government final consumption expenditure, lowest since FY15, was not quite anticipated. During uncertain times, only the government can propel the multiplier effect in the economy. Hope hinges on the government to increase its spending to revive the private sector sentiment, overall demand and largely private investment. Thus, in spite of the stimulus measures announced by the government during the course of the year, expectation of additional measures from the union budget remains high,” said Arun Singh, global chief economist, Dun and Bradstreet.
