GDP contraction

Subject: Economy

Context:

According to data released by the National Statistical Office, India’s GDP growth rate contracted by 23.9% for the April to June quarter.

Concept:

• 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.
• Economists expect this to contribute to a contraction in annual GDP this year, which may be the worst in the history of independent India.
• The Indian economy is in a deeply vicious cycle, where demand is contracting so heavily, while the capacity to neutralise this contraction has also contracted equally because of the tax revenue contraction.
• Last contraction of the economy occurred in 1979-80, when GDP shrank 5.2%. There have been four other instances of minor contraction between 1965-68, and 1972-73.
• India is among the worst in countries severely impacted by the Covid-19 pandemic, an analysis of GDP number across major economies has shown.
• While China, which many believe to be the epi centre of the Covid-19 outbreak, announced a surprise 3.2 per cent growth in its GDP during this quarter compared to the same period last year, others like the UK and Germany witnessed a contraction. For the April-June period, the UK took a 20.4 per cent hit in its GDP, while Germany experienced a “record” 10.1 per cent contraction.