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GDP claws back faster than expected in Q2

GDP claws back faster than expected in Q2
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GDP claws back faster than expected in Q2

Highlights

Economy contracts 7.5%, down from -23.9% in Q1; Drop in fall augurs well for GDP

New Delhi: India's economy recovered faster than expected in the September quarter as a pick-up in manufacturing helped GDP clock a lower contraction of 7.5 per cent and held out hopes for further improvement on consumer demand bouncing back.

The gross domestic product (GDP) had contracted by a record 23.9 per cent in the first quarter of 2020-21 fiscal (April 2020 to March 2021) as the coronavirus lockdown pummelled economic activity. The second straight quarter of contraction pushed India to its first technical recession.

The GDP contraction of 7.5 per cent in July-September compared with a growth of 4.4 per cent in the same quarter last year, according to data released by the statistics ministry on Friday.

With the gradual opening up from June, the economy picked up momentum. Manufacturing clocked a surprise 0.6 per cent growth in July-September after it had shrunk by a massive 39 per cent in the preceding quarter.

Continuing its good showing, the agriculture sector grew by 3.4 per cent, while electricity and gas expanded 4.4 per cent. Financial and real estate services shrank 8.1 per cent in the second quarter of FY21 from a year ago, while trade, hotels, transport and communication declined 15.6 per cent. The construction sector, which is the second-largest employer in the economy, contracted only 8.6 per cent in Q2 versus (-) 50 per cent in Q1. Public spending was down 12 per cent. Analysts and economists, who have projected the economy shrinking for the full fiscal, had expected a wider contraction in Q2. China's economy grew by 4.9 per cent in July-September this year, faster than the 3.2 per cent growth in April-June 2020.

Chief Economic Adviser Krishnamurthy Subramanian said the GDP numbers were "quite encouraging" given the pandemic and compared with the previous quarter's performance. Giving outlook for the near future, he said, "We should be cautiously optimistic and the caution is warranted because the economic impact is primarily due to the pandemic."

In the first half, India's GDP contracted by 15.7 per cent compared to a growth of 4.8 per cent in the same period last fiscal. Though the contraction in July-September pushed India into its first technical recession, based on records going back to 1996, a sharp recovery held out hopes for the economy turning around before the end of the fiscal year. Analysts said the recovery was 'V' shaped.

Post Q2, there has been a pick-up in consumer demand for autos, non-durables and rail freight during the festival season as prospects grew for Covid-19 vaccines to be launched early next year. But there are downside risks as some states reimposed curbs to fight a second wave of infections, which could possibly slow the pace of recovery in the next two or three months, as well as heightening the risk of inflation.

The improvement in the economy came ahead of next week's interest rate decision by the RBI. "GDP at Constant (2011-12) Prices in Q2 of 2020-21 is estimated at Rs 33.14 lakh crore, as against Rs 35.84 lakh crore in Q2 of 2019-20, showing a contraction of 7.5 per cent as compared to 4.4 percent growth in Q2 2019-20," the National Statistical Office (NSO) said in a statement.

India Enters Technical Recession

From lows of the pandemic-induced lockdown, the country for the very first time since Independence entered into a technical recession

♦ Q1 & Q2 recorded negative output

♦ Drop in purchasing power, tax revenue, capex may result in more defaults

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