Coronavirus impact: The Covid-19 situation has dragged down the economy and gross domestic product is expected to shrink by 7.7 per cent in 2020-21, according to the first advance estimate of GDP released by the Ministry of Statistics and Programme Implementation on Thursday. The latest estimate by the NSO is in line with the Reserve Bank of India’s projection of 7.5 per cent contraction. Rating agencies ICRA and Crisil have predicted it to contract by 7.8 per cent and 7.7 per cent respectively. Also Read: Historic First! Tesla Boss Elon Musk Is World's Richest Person, Surpasses Amazon's Jeff Bezos

If it contracts to this extent , then it will be the biggest annual contraction in records going back to 1952, according to Bloomberg. Impacted by the pandemic, the latest estimate is considered to be the biggest annual contraction in records going back to 1952 as the measures taken to contain the spread disrupted businesses and households.

What are the latest findings?

The data released showed that the nominal GDP will contract by 4.2 per cent. As tax revenue grows in consonance with nominal GDP, revenue stress could be of a magnitude that is closer to this number. Real GDP at constant prices in the year 2020-21 is likely to attain a level of Rs 134.40 lakh crore, as against the Provisional Estimate of GDP for the year 2019-20 of Rs 145.66 lakh crore.

What's significance of this data?

The advance estimates assumes significance because the Union Budget uses these numbers for assuming GDP growth rates at current prices for the next financial year, on the basis of which all crucial numbers such as the fiscal deficit and tax numbers will be calculated.

“The movement of high-frequency indicators in recent months points towards a broad-based resurgence in economic activity. A more manageable pandemic situation compared to advanced nations has further given momentum to the economic recovery,” the finance ministry said in a release.

The pandemic has badly impacted the economy due to strict nationwide lockdown to contain the spread of virus. India recorded a record contraction in the country’s GDP in the fiscal first quarter, which was 23.9 per cent. However, as the unlock phase began in June, the GDP picked up to contract only 7.5 per cent in the second quarter.

Also, a significant amount of recovery was seen during the festive season after Q2, it is unlikely to have been reflected in the first advance estimates as it is based on projections from a seven month period (April–October), using a mix of the corporate results, agriculture production data, transport and freight estimates, the index of industrial production, bank credit and deposits, and various other indicators.

Nevertheless, the second advance estimates will be released by the end of February and will be based on a more comprehensive set of data.