GDP expands 8.4% in Jul-Sep quarter
Economy surpasses pre-pandemic size, boosted by services activityThe government exhausted only 36.3% of the year’s fiscal deficit target due to robust growth in revenue receipts
PremiumNEW DELHI : The Indian economy expanded 8.4% in the September quarter, surpassing its pre-pandemic size, as vaccination picked up pace and services activity returned to normal after the disruptions caused by the devastating second wave of the pandemic in the June quarter.
In the first six months of the fiscal year, gross domestic product (GDP) growth averaged 13.7%, aided by a favourable base. As a result, most economists now expect growth to be around 9-10% in FY22.
“India is likely to have double-digit growth in FY22, 6.5-7% next year and over 7% thereafter," Krishnamurthy Subramanian, chief economic adviser to the finance ministry, told reporters.
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Data released by the statistics department showed that the farm sector grew by 4.5%, boosted by a good monsoon, while manufacturing grew 5.5% during the September quarter due to a pick-up in festive demand.
Among services activities, construction; trade, hotel and transport; financial and real estate services grew at 7.5%, 8.2% and 7.8%, respectively, as states eased covid restrictions. Government expenditure picked up pace, growing at 17.4% during the second quarter. Despite improvements, private consumption and investments continue to be subdued.
Data separately released by the Controller General of Accounts showed that the central government spent 52.4% of its total expenditure target by October against 54.6% during the same period a year ago. However, the government exhausted only 36.3% of the year’s fiscal deficit target due to robust growth in revenue receipts.
In a research note, Care Ratings said the Indian economy is yet to surpass pre-pandemic levels in a meaningful manner. “Even if the pace of recovery is sustained in the next two quarters, India’s GDP for the year is expected to be only marginally higher than that in FY20 (by around 2%)," it added.
Eight infrastructure sectors recorded impressive 7.5% growth in October, indicating the growth recovery may sustain in the coming months. However, economists cautioned about risks such as the resurgence of the pandemic.
Aditi Nayar, chief economist at ICRA Ltd, said she expects a 9% growth in real GDP in FY22 without concrete evidence regarding the durability of domestic demand and the coronavirus’s Omicron variant reigniting uncertainty regarding the strength of global demand. “With the Q2 FY22 GDP growth higher than the Monetary Policy Committee’s forecast of 7.9% even as uncertainty has reignited following the discovery of the Omicron variant, we expect a status quo in the December policy review. However, the tone may shift to signal an upcoming change in the monetary policy stance to neutral in the February policy review," she added.
Care Ratings said improvement in demand and investments are expected to be limited and gradual, given that the domestic economy was grappling with low demand and subdued investment climate even before the pandemic.
Rohit Poddar, managing director, Poddar Housing and Development Ltd, said several economic challenges such as rising inflation, high input costs, and crude price may limit the government’s capacity to act on the fiscal front. “The risk arising due to the Omicron variant are key risks to growth. However, continued low interest and easy liquidity policy will help sustain growth," he added.
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