Gujarat, Assam, Goa and Sikkim are likely to see double-digit contraction in gross state domestic product (GSDP) during the current fiscal (FY21), India Ratings & Research (Ind-Ra) said on Monday. Ind-Ra, a Fitch group company, is engaged in rating actions for Indian corporates and the economy.
The agency expects “the gross state domestic product (GSDP) of all states in India to contract in FY21. The contraction will be in the range of 1.4 per cent-14.3 per cent.” This estimate is based on the impact of the lockdown on the States’ economy. The top five major States where the impact of the lockdown has been most pronounced are Karnataka, Jharkhand, Tamil Nadu, Kerala and Odisha. Similarly, the five major States where the impact of the lockdown has been the least pronounced are Madhya Pradesh, Punjab, Bihar, Andhra Pradesh and Uttar Pradesh.
Overall, the Indian economy is estimated to de-growth by 5.3 per cent. This is in line with the estimates of all agencies and research institutions.
According to Ind-Ra, despite the nationwide lockdown enforced on March 25, 2020, several economic activities defined as essential remained operational, while the lockdown impacted the various sectors, namely agriculture, industry and services, differently. “Since agricultural activities were less impacted, the States having a higher share of agriculture are expected to have suffered less, compared to the ones with low share of agriculture,” it said. Also, some sub-sectors, especially in services such as banking and financial services, IT and IT-enabled services, were less impacted, because they were able to readjust their operations remotely, thanks to the high penetration of digitial platforms in their business operations.
For example, the proportion of agriculture in gross value-added was 14.6 per cent for Haryana and 25 per cent for Punjab in FY19. Similarly, the proportion of industry and services was 31.1 per cent and 54.3 per cent respectively, in Haryana and 25.2 per cent and 49.8 per cent in Punjab. This means, the overall growth performance of Haryana is more susceptible to the performance of industrial and services sectors. As a result, “our estimate suggests that the proportion of Haryana’s economy that became dysfunctional during the lockdown is 64.3 per cent, higher than 47.9 per cent of Punjab,” the study said.
States’ own tax revenue (SOTR) is a function of the nominal GSDP. Although the lockdown is set to adversely impact the revenue performance of all States, those that are likely to be impacted more in FY21 are the ones whose share of SOTR in the total revenue is higher. These States are also expected to witness a higher deviation in their nominal GSDP from the budgeted GSDP. The most vulnerable States in this respect are Maharashtra, Gujarat, Tamil Nadu, Kerala, Telangana and Haryana. The share of SOTR in the total revenue of these States has been budgeted in the range of 57-64 per cent in FY21, and their nominal GSDP for the fiscal is expected to deviate from the budgeted nominal GSDP in the range of 15-24 per cent.
Table
Estimate of Gross State Domestic Products
(FY 2020-21/In %)
Source: Ind-Ra based on GSDP data from National Statistical Office