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India Q2 GDP data: Economy claws back some lost ground, contracts 7.5%

The GDP had expanded by 4.4% in the corresponding July-September period of 2019-20 (Photo: Bloomberg)Premium
The GDP had expanded by 4.4% in the corresponding July-September period of 2019-20 (Photo: Bloomberg)

  • India, which is Asia's third largest economy, had witnessed a record 23.9% contraction in the previous three months ending 30 June
  • Given the uncertainty, it is difficult to predict if positive territory can be hit in third or fourth quarter, says CEA on economy

India's economy recovered to 7.5% contraction in the July-September quarter, shows gross domestic product (GDP) data released by the National Statistical Office (NSO).

Indian economy grew 4.4% in the year-ago period. India, which is Asia's third largest economy, had witnessed a record 23.9% contraction in the previous three months ending 30 June. The June quarter was primarily the quarter that bore the brunt of a nationwide lockdown due to the Covid-19 pandemic.

Quarterly GVA at Basic Prices at Constant (2011-12) Prices for Q2 of 2020-21 is estimated at 30.49 lakh crore, as against 32.78 lakh crore in Q2 of 2019-20, showing a contraction of 7 percent.

Quarterly Estimates of GVA at Basic Prices in Q2 (July-September) of 2020-21 (at 2011-12 Prices)
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Quarterly Estimates of GVA at Basic Prices in Q2 (July-September) of 2020-21 (at 2011-12 Prices)

GDP at Current Prices for H1 2020-21 is estimated at 85.3 lakh crore as against 98.39 lakh crore during the corresponding period of previous year, showing a contraction of 13.3 percent in H1 2020-21 as against growth of 7 percent during the same period last year.

The performance of manufacturing was a positive surprise in Q2. It recorded positive growth of 0.6% in Q2 as compared to 39.3% contraction in Q1.

Chief Economic Adviser K V Subramanian on Friday said there is an "upside potential" in the estimates about the economy during the current financial year as recovery is taking faster than expected.

Giving outlook for the near future, he said, "We should be cautiously optimistic and the caution is warranted because economic impact is primarily due to the pandemic."

Given the uncertainty, he said, it is difficult to predict if positive territory can be hit in the third or fourth quarter of this fiscal.

"I would say that the given what we have seen in Q1 and Q2 and with the optimism that is being seen in the estimates, I do see upside potential in that estimate given the good recovery that is happening," he said when asked about growth estimates for the entire financial year.

The next release of quarterly GDP estimates for the quarter October-December, 2020 (Q3FY21) will be on 26 February, 2021.

Continuing its good showing, the agriculture sector grew by 3.4%, while the trade and services sector showed lower-than-expected contraction at 15.6%.

Public spending was down 12%.

China's economy grew by 4.9% in July-September this year, faster than the 3.2% growth in April-June 2020.

"Q2 GDP contraction at 7.5% is way ahead of expectations. The 0.6% expansion in manufacturing has come as a pleasant surprise. If this trend sustains Q3 contraction will be very low and Q4 will post positive figures. If so, the annual contraction can be around 6 percent. Sharp expansions in H1 FY22 is on the cards. A 'V' shaped recovery in FY 22 is in the realm of possibility. It is important to sustain the growth momentum," said V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Expert views

"Today's statistics show that GDP contraction has narrowed, partly helped by decent agricultural growth and some pick up in manufacturing activities.

"However, critical employment generating sectors like construction, mining and services continue to stay weak. This data needs to be interpreted with caution as India has a very large unorganised sector and the measurement of its value added was not feasible due to restrictions on the movement of data collectors," said Rupa Rege Nitsure, group chief economist, L&T Financial Services, Mumbai.

"Today's GDP print increases our confidence that recovery is gaining pace and is becoming more broad-based. While during the initial period of unlocking, rural economy’s buoyancy was supportive, urban demand too has begun to normalize in pre-festive period.

"Although the resurgence of COVID cases in key cities in India as well as globally remains a risk, we believe that a significant part of the demand resurgence in India is attributable to Tier 3 and Tier 4 cities and rural India and hence the downside risks to growth remain capped. We retain our FY21 GDP growth forecast to -7%," said Garima Kapoor, economist- institutional equities, Elara Capital, Mumbai.

"The GDP numbers are better in Q2 when compared with Q1, thanks to easing of lockdowns. From -23% in Q1 to -7.5% in Q2 is definitely recovery and more importantly better than the predictions of many agencies. The growth in manufacturing, though very nominal, is something to cheer for. As in the case of Q1, agriculture has performed well when compared with other sectors. The real test would be in Q4 when the festive season gets to a closure and sustaining the demand would be a challenge, which would be decisive in limiting the economic damage for the year. The dip in private consumption by 11.5% indicates that the demand is still far from normal and that the supportive measures from the government should continue. Concern is that the population should not get into a debt averse mode thereby focusing on savings instead of consumption which could really slow down recovery. However, unlike the case of recession in Japan in 90s, there’s no significant dip in asset prices or large scale impact on balance sheet values - hence sustained fiscal impetus should see us through. Efforts need to be made to improve the psychology of consumption and government should lead the way for a faster recovery," said Divakar Vijayasarathy, Founder & Managing Partner, DVS Advisors LLP.

  • Eight core industries' growth contracts for eighth straight month in Oct

India's infrastructure output contracted 2.5% in October as against 0.8% contraction in September, falling for an eighth straight month, government data on Friday showed.

Infrastructure output, which comprises eight sectors including coal, crude oil and electricity and accounts for nearly 40% of industrial output, contracted 13% in the seven months through October from a year earlier, the data showed.

Coal, fertilisers, electricity and cement sectors showed growth during the month.

  • Apr-Oct fiscal deficit tops 126% of full year target

India's fiscal deficit in the seven months to end-October stood at 9.53 trillion ($128.9 billion), or 126.7% of the budgeted target for the whole fiscal year, government data showed on Friday.

Net tax receipts were 5.76 trillion, down 15.7% from a year ago, while total expenditure was 16.6 trillion, the data showed.

The deficit is predicted to exceed 8% of GDP in the 2020/21 fiscal year that ends in March 2021, economists said, from initial government estimates of 3.5%, mainly due to a sharp economic contraction triggered by the coronavirus pandemic.

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