{"id":11842,"date":"2020-10-09T07:32:46","date_gmt":"2020-10-09T07:32:46","guid":{"rendered":"\/blog\/?p=11842"},"modified":"2020-10-09T07:33:34","modified_gmt":"2020-10-09T07:33:34","slug":"the-gdp-print-has-come-worse-than-expected","status":"publish","type":"post","link":"https:\/\/tata-blog.osian.dev\/blog\/wealth-services\/the-gdp-print-has-come-worse-than-expected\/","title":{"rendered":"The GDP Print has come worse than expected. The Effect of Q1 GDP contraction will be felt for years to come. Explained"},"content":{"rendered":"\n

The Covid-19\npandemic not only continues to claim the lives and livelihood of millions but\nhas also deferred India\u2019s target of becoming a 5 trillion dollar economy.\nAlthough the target was already beginning to seem distant since the economy was\ngripped by a massive economic slowdown even before March, the rising Covid-19\ncaseload means that that the target is least of India\u2019s problem right now.<\/p>\n\n\n\n

The GDP\ncontracted by a massive 23.9 per cent in the April to June quarter (YoY). This\ncame in as a shocker since most polls expected the number to be 18 per cent.\nThe alarming decline was a result of the Covid-19 outbreak which necessitated a\nnationwide lockdown resulting in massive job loss and decline in economic\nactivity. <\/p>\n\n\n\n

In order to truly understand the implications of the worst\ncontraction in over 40 years let’s look at how the former RBI governor Raghuram\nRajan reacted to the data points. His comments assume significance since he\npoints at the issue that will continue to act as an impediment in India\u2019s\ngrowth. Rajan warned that in the absence of relief measures, households may\nskip meals and pull children out of schools. <\/p>\n\n\n\n

A break in education for low-income groups could mean that\nchildren may be forced to work at a young age or beg. He further said that\nhouseholds may be forced to pledge their gold to borrow, and let EMIs [equated\nmonthly instalment] and rent arrears pile up. Rajan further threw light at\nsmall and medium firms such as small restaurants who may stop paying workers,\nlet debt pile up, or close permanently in absence of relief. <\/p>\n\n\n\n

Strained government finances <\/strong><\/h2>\n\n\n\n

The massive decline of economic activity owing to the lockdown\nwill adversely impact tax revenues of both the Centre and the states. The Reserve\nBank of India in its annual report noted that the fiscal space for the Union\ngovernment to continue to support demand in the economy may be \u201cseverely\ndiminished\u201d given the impact of Covid-19 on government finances.<\/p>\n\n\n\n

In what could continue to adversely impact economic activity in\nthe country, the central bank warned of potential output losses once the\nunwinding of the stimulus measures and regulatory easing starts after the\npandemic. Besides reducing the debt and deficit levels in the aftermath of the\npandemic would also be a challenge for the government. <\/p>\n\n\n\n

\"Indian<\/figure>\n\n\n\n

(Source: HT Mint) <\/p>\n\n\n\n

Indian GST collection also suffered significantly. The drop in\nGST revenue had resulted in heated discussions between the central and state\ngovernments. States have claimed that the center had assured them of\ncompensation for tax collection till 2020 but the center had invoked \u2018act of\nGod\u2019 for not paying the dues directly. Although the matter was resolved, flaws\nin the GST regime came out in the open. <\/p>\n\n\n\n

Additional Read: <\/strong>Effect of Bank Failure on the\nEconomy<\/a><\/p>\n\n\n\n

Unorganized sector <\/strong><\/h2>\n\n\n\n

In less than 5 years, the unorganized sector has witnessed\nanother jolt. Demonetization had already caused severe loss of livelihood which\nwas reflected in the massive fall in consumption, which was partly responsible\nfor the economic slowdown that followed. The unorganized sector, other than\nagriculture, was hit the hardest by the Covid-19 induced lockdown. <\/p>\n\n\n\n

With little working capital at their disposal, the units in his\nsector will be forced to dip into their savings in order to survive. Besides\nowing to the lack of working capital the sector will find it tougher to revive\neven after the lockdown. The impact of which will continue to show in the\nfuture. <\/p>\n\n\n\n

Loan moratorium quagmire <\/strong><\/h2>\n\n\n\n

Amid growing calls to waive-off interest during the period of\nlockdown, the government has set up an expert panel to assess the impact of\ninterest waiver on moratorium loans. Besides the fundamental question \u2014 how\nwill banks pay depositors\u2019 interest if they don\u2019t charge interest from\nborrowers, the RBI has estimated the likely impact of interest waiver on the banking\nsector to be around Rs 2 lakh crore. <\/p>\n\n\n\n

According to another research, if interest-on-interest during the\nmoratorium period is waived off, the impact on the banking system could be\nabout Rs 15,000-20,000 crore. Therefore the banking system may be forced to\nbear the consequences of the lockdown which may act as a growth impediment in\nthe future. <\/p>\n\n\n\n

Additional Read: <\/strong>Loan moratorium can be extended\nby 2 years: Govt<\/a><\/strong><\/p>\n\n\n\n

Conclusion: <\/strong><\/h2>\n\n\n\n

The first sign of the impact of lockdown on the economy was only visible in the Q1 numbers. The economy is yet to be fully reopened and with the rising caseload, the decision to unlock economic activity shall be all the more difficult. Experts are of the view that the GDP figures during the current fiscal year may remain in the negative territory. During these uncertain times, you may want to rely on professional wealth managers. Tata Capital offers an unmatched bouquet of well-researched wealth management<\/a> products for each asset class. Tata Capital\u2019s endeavor is to ensure that customers get the right solutions best suited for their investment goals.<\/p>\n","protected":false},"excerpt":{"rendered":"

The Covid-19 pandemic not only continues to claim the lives and livelihood of millions but has also deferred India\u2019s target of becoming a 5 trillion dollar economy. <\/p>\n

Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":11844,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[37],"tags":[],"class_list":["post-11842","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-wealth-services"],"yoast_head":"\nThe Impact of GDP Contraction in Q1 Explained - Tata Capital Blog<\/title>\n<meta name=\"description\" content=\"The GDP contraction has been much worse than expected. Read our blog to understand about the long term impact of GDP downfall due to Covid-19 on the economy. 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