Economy exits recession as GDP grows 0.4% in Q3; Govt cautions pandemic threat persists

THE INDIAN economic system emerged out of technical recession in October-December 2020 and grew 0.4 per cent with enchancment in manufacturing, development and agriculture.
According to the second advance estimates launched by the National Statistical Office on Friday, the economic system will, nonetheless, face a deeper 8 per cent contraction for the total 12 months 2020-21, as towards the sooner estimate of seven.7 per cent.
NSO’s second advance estimates are obtained by extrapolating indicators just like the Index of Industrial Production (IIP) of the primary 9 months of the monetary 12 months. The estimates have been prone to bear “sharp revisions” since knowledge assortment for IIP and CPI have been impacted attributable to restrictions imposed in March final 12 months in view of the pandemic.
In an announcement, the Finance Ministry mentioned the Q3 numbers have been a mirrored image of the additional strengthening of a V-shaped restoration, however warned that India was not but out of the hazard of the pandemic.
The GDP had contracted by 23.9 per cent and seven.5 per cent within the April-June and July-September quarters, respectively, marking a technical recession within the aftermath of the Covid-19 pandemic. The GDP charges for Q1 and Q2 have now been revised to (-)24.4 per cent and (-)7.3 per cent, respectively.
In the third quarter, the manufacturing sector grew 1.6 per cent as towards a contraction of 1.5 per cent within the earlier quarter, and a pair of.9 per cent contraction in October-December 2019. The development sector additionally gained momentum, rising 6.2 per cent in October-December 2020, as towards a contraction of seven.2 per cent within the earlier quarter, and 1.3 per cent contraction throughout the identical interval final 12 months.
The GDP progress estimate of 0.4 per cent for the third quarter this 12 months is greater than 0.1 per cent progress projected by the Reserve Bank of India. In the corresponding quarter final 12 months, the economic system had grown 3.3 per cent.
Growth in agriculture picked tempo and jumped 3.9 per cent in October-December in contrast with 3 per cent progress in July-September and three.4 per cent progress in the course of the corresponding quarter final 12 months.
Financial, actual property {and professional} companies grew 6.6 per cent as towards 9.5 per cent contraction within the earlier quarter and 5.5 per cent progress within the corresponding interval final 12 months.
Mining, commerce, accommodations, transport, communication and broadcasting companies and public administration companies continued to remain within the adverse territory within the third quarter registering a contraction of 5.9 per cent, 7.7 per cent, and 1.5 per cent, respectively.
Cumulatively, for April-September, the Indian economic system recorded a contraction of 10.4 per cent as towards 4.4 per cent progress final 12 months.
Economists anticipated solely a gentle enchancment going forward, as a projection of 8 per cent contraction for the total 12 months implies a contraction once more within the fourth quarter. “Intriguingly, GDP is implicitly projected by the NSO to slip back into a contraction of 1.1 per cent in Q4 FY2021, which may be an unintended consequence of the back-ended release in the Government of India’s subsidies,” mentioned Aditi Nayar, Principal Economist, ICRA.

“Various lead indicators have recorded a loss of momentum so far in Q4 FY2021, in contrast to the improvement in sentiment brought on by the vaccine rollout. We expect consumption growth to strengthen only modestly in the near term, as a part of the healthier income generation is used to rebuild the savings buffers that were drained during the lockdown by those in the informal sector, contact intensive industries, and the self employed,” she mentioned.
The Finance Ministry mentioned the Q3 GDP numbers confirmed the success of the federal government’s preliminary coverage of “lives over livelihood”. “The sharp V- shaped recovery has been driven by rebounds in both Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF) as a combination of astute handling of the lockdown and a calibrated fiscal stimulus has allowed strong economic fundamentals to trigger quick resumption of high activity levels in the economy,” it mentioned.
It, nonetheless, mentioned India was not but out of the hazard of the pandemic. “Social distancing continues to be the most effective tool to combat the pandemic as activity levels continue to rise in the economy boosted by the rapidly escalating inoculation drive in the country,” it mentioned.
The progress fee when it comes to gross worth added (GVA) — which is GDP minus web product taxes, and displays progress in provide — is seen contracting 6.5 per cent in 2020-21 as towards earlier estimate of seven.2 per cent and three.9 per cent within the earlier 12 months. GDP in nominal phrases, which elements in inflation, is estimated at (-)3.8 per cent within the second advance estimates, up from the primary advance estimate of (-)4.2 per cent.
On the expenditure facet, gross fastened capital formation — an indicator for personal funding — picked up tempo to develop 2.6 per cent in October-December. Government last consumption expenditure contracted by 1.1 per cent in October-December, whereas different drivers of demand within the type of personal consumption expenditure contracted by 2.4 per cent.