India’s GDP grows 1.6% in March quarter, but contracts 7.3% for FY21

India's gross domestic product (GDP) expanded 1.6% in the March quarter of FY21, but contracted 7.3% in the full financial year, according to the data released by the government's statistics office on Monday. The improvement in this quarter is due to calibrated and steady opening of the economy, the government stated.

This is the second quarter in a row in which the GDP has shown growth after being ravaged by the novel coronavirus pandemic since March, 2020. In the October to December quarter, Indian economy had grown at 0.4%, pulling out of a steep pandemic-induced recession in earlier six months.

India also revised its annual GDP estimates for the fiscal year, predicting a 7.3% contraction, less than its earlier estimate of -8.0%.

"GDP at Constant (2011-12) Prices in Q4 of 2020-21 is estimated at ₹38.96 lakh crore, as against ₹38.33 lakh crore in Q4 of 2019-20, showing a growth of 1.6 percent," the government data stated.

The GDP for the financial year 2020-21 is now estimated to attain a level of ₹135.13 lakh crore, as against the First Revised Estimate of GDP for the year 2019-20 of ₹145.69 lakh crore, released on 29th January 2021, the data by Ministry of Statistics & Programme Implementation (MoSPI) stated.

During the March quarter, the gross value added (GVA), which is a more accurate way of assessing the actual growth in the economy, grew 3.7% as against 1% in the December quarter.

The measures taken by the Government to contain the spread of the Covid-19 pandemic have had an impact on economic activities as well as on data collection mechanisms, it added.

"The momentum of GDP growth has been affected by the second wave but overall economic impact of second COVID-19 wave not likely to be very large," said Chief Economic Adviser K V Subramanian, adding, "Foodgrains production is expected to be at record levels in this year and coming year given the normal monsoon that has been predicted by the IMD. This is reflected both in cereals (rice and wheat) and pulses. The demand in rural India has been resilient."

He also said that MGNREGS provided significant rural employment in 2020-2021. "There is a significantly lower level of demand for work in May, compared to the same period last year," the CEA observed.

He also added that there is a need to enhance pace of vaccination for lowering likelihood of another COVID-19 wave.

"The Q4FY21 GDP growth of 1.6% reflects the full impact of unlocking of the economy post COVID-19 shock (of first wave). While the second wave of infections has been much more severe, the absence of a stringent nationwide lockdown has been a positive," said Garima Kapoor, economist - Institutional Equities, Elara Capital, Mumbai. "The impact during the second wave has been more pronounced on consumer sentiment and mobility rather than economic activity. The rebound in consumer spending would hence be more gradual than wave 1 with vaccination being the key driver. We expect FY22 GDP growth at 10.5% vs our earlier estimate of 12.5%," she added.

While pent-up demand for everything from mobile phones to cars revived consumption in Asia’s third-largest economy after it reopened last year from one of the strictest lockdowns that lasted more than two months, India’s status now as the global virus hotspot could hurt those prospects.

India had slipped into a technical recession during July-September when GDP fell for two successive quarters. In the July-September quarter, India's GDP contracted 7.5% year-on-year. The economy shrank 23.9% year-on-year in the April-June quarter in the wake of coronavirus outbreak and nationwide lockdown to prevent the virus. The government has revised the GDP growth for June and September quarters to -24.4% and 7.3% respectively against earlier estimates of -23.9% and -7.5%.

Economists in a Reuters poll had expected world's third-largest economy to grow 1.0% in the March quarter from a year earlier.

Meanwhile, India's fiscal deficit for 2020-21 ballooned to a record last year, as the government borrowed more to spend its way out of the pandemic-induced slump. The fiscal gap for the year ended March 31 touched 9.3% of GDP, data released by the Controller General of Accounts showed Monday. That’s the widest on record, and is narrower than the government’s revised 9.5% goal set in February.

But economists have trimmed their growth forecast for the fiscal year starting April 1 amid the second wave of the pandemic. For the fiscal year to March 2022, economists cut their median forecast to 9.8% from 10.4%, according to a Reuters poll. Economists say the relaxation of restrictions across states will determine the strength of the rebound.

Although the rise in daily new coronavirus cases have started to slow, India has recorded highest number of infections, behind only the United States. The pandemic, RBI recently said in its annual report added, "is the biggest risk" to India's economic growth outlook.

The central bank, which has kept monetary policy loose while boosting liquidity to the economy, said that growth prospects will depend on how fast India can arrest infections.

The biggest hit from the second wave of Covid infections has been to demand, with a loss of mobility, discretionary spending and employment, the Reserve Bank of India said earlier this month. The central bank, which will review interest rates later this week, has kept monetary policy loose and injected liquidity into the system to support growth.

Unemployment soared to a near one-year high of 14.7% in the week ending May 23, according to the Centre for Monitoring Indian Economy, a Mumbai-based private think tank.