Why in News?

Gross Domestic Product (GDP) growth contracted 23.9 percent in the April-June quarter. This also marked its entry into a recessionary phase as GDP Shrinks by 23.9 this year based on the data released by the National Statistical Office.

Details of the fall

• Construction, manufacturing and trade, hotels and transport were the worst-hit sectors. Contractions of 50.3 per cent, 39.3 per cent and 47.0 per cent, respectively from each sector.
• This is the lowest growth rate since India started reporting quarterly data in 1996.
• Agriculture is the only sector having a positive growth at 3.4 per cent.
• Besides this is the sharpest GDP contraction among the top 20 global economies.

Reason GDP Shrinks by 23.9

• Suspension of economic activity in the first quarter of this fiscal due to the pandemic
• Series of lockdown in the national and global level.
• Industrial output was in small phase before the lockdown was implemented.
• Private consumption is the biggest engine driving the Indian economy has fallen by 27%.
• Investments by businesses has fallen even harder it is half of what it was last year same quarter.
• Since the income of private individual  falls they cut down their consumption.

Impact of the GDP Shrinks by 23.9

• The worst affected areas create maximum job and loss of job increases leads to unemployment. 
• The full year GDP will be contract due tot his impact. 
• The steep decline in consumption is an issue, as consumption has accounted for 55-58 per cent of GDP leads to businesses stop investing. 

Way Forwards

• Government spend more
  • Either by building roads and bridges and paying salaries or by directly handing out money.
  • Economy revive in the short to medium term.
  • If government is not spending adequately then economy will take more time to recover.

Source : Indian Express

Topic

GS III : Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment

Current Affairs Compilation : 1 September 2020