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Defence, public admin GVA shrank 10% in Q1 despite China border threat

The sharp decline in "public administration, defence and other services" GVA surprised many economy watchers as public spending has been considered the only growth engine firing

Nirbhay Kumar | August 31, 2020 | Updated 23:52 IST
Defence, public admin GVA shrank 10% in Q1 despite China border threat
GVA of 'public administration, defence and other services' contracted 10% in June quarter

KEY HIGHLIGHTS

  • GVA of defence and public administration in Q1 FY21 is now lower than that in Q1 FY19
  • GVA of 'public administration, defence and other services' contracted 10% to Rs 3,74,656 crore in April-June period of FY21 even as tensions on India-China border intensified
  • The government final consumption expenditure (GFCE), however, rose 16% in April-June quarter of FY21 on expected lines
  • India's GDP fell sharply in the first quarter of the current fiscal contracting 23.9%
  • Barring agriculture, all other sectors witnessed contraction
  • Sharpest fall seen in construction, followed by "trade, hotels, transport, communication and services related to broadcasting"

Amid escalating tensions on the Line of Actual Control (LAC) with China, spending under "public administration, defence and other services" fell sharply during April-June quarter of the current fiscal.

The growth in the gross value added (GVA) of public administration, defence and other services decelerated to Rs 3,74,656 crore in April-June period of FY21 compared to Rs 4,17,483 crore in the same quarter last year, showing a decline of 10.3 per cent, as per the press note on GDP estimates for June quarter this fiscal.

The government final consumption expenditure (GFCE), however, rose 16 per cent during this period on expected lines.

ALSO READ: Drop in Q1 GDP on expected lines; India on a V-shape recovery path: CEA K Subramanian

The sharp decline in "public administration, defence and other services" GVA surprised many economy watchers as public spending has been considered the only growth engine firing. Also, these two figures - GVA in public administration, defence and other services and GFCE - are contradictory.

"One of the things where I am not very comfortable with is sharp deceleration in public administration component especially when a lot of front-loading was happening," said N.R. Bhanumurthy, Vice-Chancellor of Bengaluru Dr BR Ambedkar School of Economics University.

"It is nothing to do with actual government behaviour. It may be something to do with methodology itself," he added.

M Govinda Rao, former Member of the PM's Advisory Council, said that public administration includes education, medical and other services also. Further during lockdown, hospitals were attending mostly COVID-19 patients, educational institutions were not working and several other public administrative functions were minimised.

"There were several allied services that contracted," he said.

ALSO READ: Govt spending saved the day for GDP in June quarter

The NSO considers monthly accounts of the Centre, expenditure maintained by Controller General of Accounts (CGA) and of state governments' expenditures maintained by Comptroller and Auditor General of India (CAG) among other key data to estimate GDP and its various components.

Commenting on the decline in 'public administration, defence and other services', R Nagaraj, eminent economist and professor at Indira Gandhi Institute of Development Research (IGIDR), said that principally it should not happen in current times.

"But as government believes in fiscal conservatism, they may have cut certain expenditure but compensated with spending elsewhere. Where it is happening is difficult to say," Nagraj said.

As anticipated by most economists and research firms, India's GDP fell sharply in the first quarter of the current fiscal contracting 23.9 per cent. This is the worst performance among various countries like the UK, France and Germany hit hard by the coronavirus pandemic.

Barring agriculture, all other sectors witnessed contraction with sharpest fall seen in construction sector, followed by 'trade, hotels, transport, communication and services related to broadcasting'.

The mass migration of workers from cities and supply chain disruptions badly affected most sectors. While situation has improved since May, following gradual opening of the economy, concerns around recovery persist.

ALSO READ: India's GDP contracts 23.9% in Q1; construction, manufacturing, trade bear the brunt

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