Indian Economy Shrank By Record 23.9% In April-June Quarter As COVID-19 Infections Climbed

India’s gross domestic product plunged by 23.9% in the April-to-June quarter – the biggest year-over-year contraction on record – largely due to the government’s ordered lockdown to prevent the spread of COVID-19.

In contrast, the Indian economy climbed by 3.1% in the January-March quarter, and expanded by 5.2% in the quarter ended June 2019.

The April-to-June 2020 slump was also the worst performance among the major economies in Asia – but still fared better than the U.S., where GDP plummeted an historic 32.9% in the second quarter.

During the quarter – which was the first quarter of India’s fiscal year – the mining sector contracted 23.8%, manufacturing shrank 39.3%, and construction plunged 50.3%.

“GDP contraction of close to 24% year-on-year during [the first quarter of fiscal 2021] was sharper than expected. was sharper than expected,” said Siddhartha Sanyal, chief economist at Bandhan Bank. “Double-digit contraction in GDP remains likely also during the current quarter with the headwinds of fresh lockdowns weighing on [the] economic recovery.”

But the government's chief economic adviser, Krishnamurthy Subramanian, said in a statement: "India was in a lockdown all through April to June quarter with majority of economic activities being restricted. So this trend is along expected lines."

Sanyal noted, however, that India’s rural economy was “relatively more resilient [to the slowdown], and might benefit from [the] government’s rural-focused employment schemes in the coming months.”

Meanwhile, India has become the new epicenter of the global COVID-19 crisis. Broadcaster NDTV reported that daily infections in India now exceed those of the U.S. and Brazil. India currently has more than 3.54 million virus cases, and has logged almost 64,000 deaths. Sunday, India recorded 78,761 new cases, the highest single-day number of any country thus far.

Prakash Sakpal, senior Asia economist at ING, commented that the haphazard way the lockdown was imposed made things worse.

“The people weren’t prepared for such an unprecedented closure of the economy, which subsequently caused panic and mass migration of workers from big cities to their native places,” he wrote.

Sakpal sees no hope for a near-term recovery.

“The [government’s] policy stimulus has also hit a snag given stretched public finances and rising inflation,” he wrote. “This means pretty much nothing can save the economy from continued deep GDP declines over the rest of the year.”

ING expects Indian GDP to shrink by 8.6% for fiscal 2021.

Soumya Kanti Ghosh, group chief economic adviser at State Bank of India, thinks the economy will do even worse – he predicts 10.9% decline this year.

“Our preliminary estimate indicates that all the four quarters of [fiscal 2021] will exhibit negative real GDP growth and decline of full year growth will likely be in double digits,” he said. “Now the question arises on how much growth will decline in subsequent quarters. It is now clearly visible that [next quarter] decline will also be in double digits.”

Ghosh specifically said GDP will decline by 12%-15% in the second quarter; drop by 5%-10% in the third quarter, followed by a 2%-5% slump in the fourth quarter.

Ghosh did however see some rays of hope in the financial sector.

“It is heartening to see that the banking sector has largely been able to insulate itself from the disruption due to greater technology integration and quick role out of work from home measures and banking being an essential service,” he said.