Shrink In GDP & Glimpse Into Majorly Affected Sectors Through GVA At Basic Prices In India During COVID-19

GDP Shrink

In India, estimation of Gross Domestic Product (GDP) is the responsibility of the Central Government through National Accounts Division (NAD) of National Statistics Office (NSO) under the Ministry of Statistics and Program Implementation (MoSPI). It is needless to say that the novel coronavirus has hindered the pace of the daily life of every person on the globe in all the aspects. Since the national-wide lockdown was announced by the Government of India on 24th March, 2020, every industry in India has come to a halt up to May 2020 ending and beginning to reopen after that in stages. This has emaciated the performance of many sectors in India the Q1 of fiscal year 2020-2021.

This article is to capture the scenario of a dip in Indian GDP in this pandemic situation by analyzing the dip in GVA of the major affected industries like Construction, Trade, Hotels, Transport, Communication & Services related to Broad Casting and Manufacturing. This article uses GDP estimated using constant prices (2011-2012) and Gross Value Added (GVA) at Basic price estimated using constant prices (2011-2012) wherever stated, to adjust the effect of inflation.

GDP growth rate was estimated to change by -23.9 % in Q1 of 2020-2021(1) i.e. April 2020 to June 2020 when compared to Q1 of 2019-2020 i.e. April 2019 to June 2019. This is a steep fall in the figures. The change was 5.2 % in Q1 of 2019-20201 when compared to Q1 of its previous year 2018-19 i.e. April 2018 to June 2018. 

The GVA in Q1 of 2020-21 changed by -22.8% when compared to GVA in Q1 in 2019-20(1). The change was 4.8 % in Q1 in 2019-20 to when compared to Q1 of its previous year 2018-19(1).

Quarterly estimates of GVA at Basic Prices in Q1 (April-June) of 2020-21 (at 2011-12 Prices)(1)

 

Industry 2018-19 2019-20 2020-21 Percentage change over previous years
2019-20 2020-21
Agriculture 4,27,177 4,39,843 4,54,658 3.0 3.4
Mining and Quarrying 88,634 92,807 71,209 4.7 -23.3
Manufacturing 5,61,875 5,78,936 3,51,396 3.0 -39.3
Electricity, Gas, Water Supply and other Utility Services 74,998 81,628 75,877 8.8 -7.0
Construction 2,49,913 2,62,828 1,30,750 5.2 -50.3
Trade, Hotels, Transport, Communication & Services related to Broad Casting 6,09,330 6,30,860 3,34,284 3.5 -47.0
Financial, Real Estate & Professional Services 7,57,850 8,03,322 7,60,491 6.0 -5.3
Public Administration, Defence & Other Services 3,87,589 4,17,483 3,74,656 7.7 -10.3

 

Glimpse into Construction, Trade, Hotels, Transport, Communication & Services related to Broad Casting and Manufacturing – Industries with highest dip in GVA in Q1 2020-21 when compared to GVA in Q1 2019-20

Manufacturing Industry, Construction, Mining and Quarrying and Electricity, Gas, Water Supply and other Utility Services

These are the most affected industry as its downfall is 39.3, 50.3, 23.3 and 7 percent respectively compared to previous years. GVA in these sectors is calculated by taking Monthly Index of Industrial Production (IIP) from Quick Estimates of Index of Industrial Production (IIP) released by CSO, MOS&PI(2). IIP provides a single representative figure to measure the general level of industrial activity in the economy on a monthly basis(3). IIP of a month is usually released with a time lag of 42 days or six weeks on 12th of every month(4). Due to the COVID-19 pandemic, majority of industrial sectors did not operate from the end of March-2020 onwards. Because of this several units reported NIL production(5). The IIP for manufacturing stood at 53.6 in April 2020(6) which clearly shows the decrease in pace of industrial activity. This is around 117.2 in March 2020 before lockdown(7). This however improved to 89.5 in May 2020 indicating a pickup(6).

Hotels and Restaurants

Easy communicability of this pandemic avoided people from visiting hotels, restaurants and even placing food orders online. GVA is calculated in this sector on the basis of financial performance of companies listed with stock exchanges (BSE/NSE)(2). Hospitality sector has showed a fall of about 82.1 percent in sales on Quarter on Quarter (QoQ) comparison between quarter ended in March 2020 and quarter ended in June 2020(8). This can show how the performance has been affected during COVID 19 which necessitated lockdown in the month of March 2020. A glimpse into the 2-year basic chart of Taj GVK Hotels shows the effect in the month of March 2020 after the announcement of lockdown by the Government of India.

Chart 1

Image source: https://www.moneycontrol.com/india/stockpricequote/hotels/tajgvkhotelsresorts/TGV

The tourism industry which has a correlation with the hotel industry is also affected. A look at the graph of 2-year basic chart of Thomas Cook (India) Ltd. shows the effect in and from the month of March 2020 after the announcement of lockdown by the Government of India.

Chart 2

Image source :  https://www.moneycontrol.com/india/stockpricequote/miscellaneous/thomascookindia/TCI

Transport

GVA of Railways is calculated by taking Net Tonnes Kilometres & Passenger Kilometres as source of data from the Ministry of Railways of India(2). GVA of other transport like Road Transport, Air Transport and Water Transport is calculated by considering number of commercial vehicles on road, estimated using the data on sales of commercial vehicles, passenger kilometers flown and freight tonne kilometers flown (both domestic and international) and Cargo handled at major ports respectively using data from SIAM(Society for Indian Automobiles Manufacturers), M/o Shipping, Infrastructure Report of PI wing of MOS&PI(2). But we tried to restrict our analysis to the facts from the news sources and  BSE sectoral performance reports from established sources.

All forms of transport including Public transport came to a still in Q1 of 2020-21 due to COVID. The only major exception to this is ‘Shramik Trains’ initiative by Indian Railways for migrants in this tough time. Indian Railways earned about Rs. 430 crores from these Shramik Trains till July 9th, 2020. According to a source, highest contributor through ‘Shramik Trains’ is Gujarat followed by Maharashtra and Tamil Nadu(9). But the Indian Railways is said to have spent around Rs. 2,400 crores(9). “This should be taken as receipt only in lieu of expenses incurred by the Railways in running of Shramik Trains. Roughly that would amount to more than Rs 2,400 crore. The fares were not taken by railways from passengers but released from state governments,” the official added(9). Logistics show a fall of 31.1 % in quarter ending June 2020 when compared to quarter ending March 2020(10).

Air transport in India also showed a dull performance during this pandemic phase. A glance at 2-year basic chart of SpiceJet Airlines shows the effect in the month of March 2020 after the announcement of lockdown by the Government of India.

Chart 3

Image source: https://www.moneycontrol.com/india/stockpricequote/transportlogistics/spicejet/SJ01

Revenue of Aviation industry has fallen by about 86.5 % in quarter ending June 2020 when compared to quarter ending March 2020(10).


Reference

  1. http://www.mospi.gov.in/sites/default/files/press_release/PRESS_NOTE-Q1_2020-21.pdf
  2. http://mospi.nic.in/sites/default/files/press_releases_statements/Methodology_doc_for_compilation_of_Quarterly_GDP_28july17.pdf
  3. http://www.mospi.gov.in/sites/default/files/iip/IIP_Manual_3apr18.pdf – 1.2 Importance of IIP
  4. http://www.mospi.gov.in/sites/default/files/iip/IIP_Manual_3apr18.pdf – 1.1 Index of Industrial Production
  5. http://mospi.nic.in/sites/default/files/iip/iipApr20.pdf – Press Release
  6. http://mospi.nic.in/sites/default/files/iip/iipJune20.pdf – Press Release
  7. http://mospi.nic.in/iip – IIP data updated up to June 2020
  8. https://www.moneycontrol.com/markets/earnings/all-sectors/qoq/standalone/ – Sectoral performance in Moneycontrol website
  9. https://www.hindustantimes.com/india-news/railways-earned-rs-430-crore-from-shramik-special-train-fares/story-duFiaV9EILYEkbF4NpLiDK.html
  10. https://www.moneycontrol.com/markets/earnings/all-sectors/qoq/standalone/ – Sectoral performance in Moneycontrol website

This article is co-authored by Pisapati Sri Venkata Sumanth, Woxsen University.

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Professor Syed Hasan Jafar has over 10 Years of Experience in the field of Finance and worked as a Research Analyst and Corporate trainer. He comes on several national media channels as a financial expert for sharing his view on the financial market. His areas of expertise are Security Analysis, Corporate Finance, Equity, and Derivative Research and Wealth management. He completed his bachelor’s degree in Science from the University of Bangalore, his post-graduation Diploma in management from the Institute of Public Enterprise (IPE). He is NISM Certified Research Analyst. His areas of expertise are Security Analysis, Corporate Finance, Equity, and Derivative Research and Wealth management. He has conducted more than 50 Investor awareness programs across the country and has been awarded Best Research Analyst several times.