India's economy expanded by 3.1 per cent in the January-March quarter dragged the full year FY20 GDP growth to 4.2 per cent, its weakest in eight years so far in the current series.

The economy had grown at 6.1 per cent in 2018-19 (FY19).

The Gross Value Added (GVA) for Q4 came in at 3 per cent almost the same as the GDP growth in Q4 which shows that the tax collections would have been hit in the fourth quarter.

The government has revised the growth for the first three quarters of FY20 to 5.2% in Q1, 4.4% in Q2 and 4.1% in Q3.

The first seven days of the lockdown had coincided with the last seven days of March making the Q4 numbers important for getting a sense of whaté expecting to come in subsequent quarters.

The fourth quarter (FY20) numbers offer a glimpse into what lies ahead for the economy in the first quarter of the current fiscal (FY21) when the full impact of the lockdown is sure to drag the economy deeper into the negative territory. Economists have projected a contraction of as much as 45 per cent in Q1FY21.

The second advanced estimates had put the economic growth at 5 per cent for FY20.

The services sector bore the brunt of lockdown as tourism, aviation, hospitality industry came to a crashing halt, thereby affecting jobs in those sector as well.

The MSME sector, which is a major contributor in the overall economic pie, suffered severely as the curbs imposed to stop the spread of Covid-19 hit the industry hard.

The Worst-hit

The construction sector, that was already in doldrums, came to a screeching halt as the nationwide curbs hit the economic activity hard. It contracted by 2.2 per cent in the fourth quarter. Manufacturing contracted by 1.4 per cent.

The hospitality sector represented by trade & hotels also slowed down considerably recording just 2.6 per cent growth.

Agriculture grew by 5.9 per cent in the fourth quarter on the back of better Rabi harvest.

The Gross Fixed Capital Expenditure contracted by 2.8 per cent in the entire fiscal reflecting weak investment in the economy. The Private Final Consumption Expenditure came in at a dismal 2.9 per cent in the fourth quarter reflecting weak urban demand as the lockdown showed its effects on the economy.

While the government had unveiled a Rs 21 lakh crore package that will usher in long pending reforms and offer credit guarantee to the ailing MSME sector, the RBI hasn't held back and complemented the fiscal measures with monetary ballast by cutting down repo rate by 115 basis points and bringing it down to 4 per cent. Along with liquidity measures, the RBI has also extended loan moratorium up to August 31 to help individuals and corporates at a time when cash flow is restricted.

The RBI Governor, Shaktikanta Das, last week, in his address had said that supply disruption and demand compression have hit the economy hard. The RBI has projected a negavtive growth rate for FY21 without putting any figure out. It expected that the growth impulses could improve in the second half of FY2020-21.

Source & Courtesy: the economic times