Govt says pre-pandemic times are here as Q3 GDP grows at 0.4%

'Significant recovery in manufacturing and construction augurs well for the support these sectors are expected to provide to growth in FY22,' says Ministry of Finance

India's gross domestic product expanded 0.4% in the three months ended December, after contracting for two consecutive quarters, mainly due to good performance by farm, services and construction sectors, according to government data released on Friday. This will help Asia’s third-largest economy exit an unprecedented recession even as it battles new challenges posed by a surge in coronavirus infections. The country's economic growth shrank 7.5% a quarter ago. 

In its second advance estimates of national accounts, the National Statistical Office (NSO) has projected 8% contraction in 2020-21.

Trade and hotel industry registered a contraction of 7.7% during the third quarter this fiscal, as the sectors continued to suffer on account of coronavirus pandemic.

According to the data released by the National Statistical Office (NSO), the farm sector recorded a growth of 3.9%, and the manufacturing sector output grew by 1.6% in the quarter under review.

The construction sector advanced by 6.2%, while electricity, gas, water supply and other utility services clocked a 7.3% growth.

The NSO said, "GDP at Constant (2011-12) Prices in Q3 of 2020-21 is estimated at Rs 36.22 lakh crore, as against Rs 36.08 lakh crore in Q3 of 2019-20, showing a growth of 0.4%".

The economy had shrunk by an unprecedented 24.4% in the first quarter this fiscal following the coronavirus pandemic and resultant lockdowns. In the second quarter, the GDP contracted 7.5% due to a perk up in economic activities.

China's economy grew by 6.5% in October-December 2020, faster than the 4.9% growth in July-September 2020. 

India is now one of the few major economies to post growth in the last quarter of calendar year 2020, with any improvement in the economy’s performance inversely tied to a drop in Covid-19 infections. But the country has seen an uptick in cases over the last few weeks raising the risk of a new round of localised lockdowns.

"Significant recovery in manufacturing and construction augurs well for the support these sectors are expected to provide to growth in FY 2021-22. Real GVA in manufacturing has improved from a contraction of 35.9% in Q1 to a positive growth of 1.6% in Q3 while in construction the recovery has been from a contraction of 49.4% in Q1 to a positive growth of 6.2% in Q3.These sectors are vital to the economy to achieve a growth of 11% or more in 2021-22 as they will be impacted most by the counter cyclical fiscal policy that budgets fiscal deficit at 6.8% of GDP," said Ministry of Finance in a statement. 

"Q3 GDP was slightly lower than expectations, albeit showed that the economy did move into the green. Going ahead, we are likely to see a continuation of a K-shaped recovery with some sectors growing faster than others.

"We expect growth to print at 1.5% in Q4 and -7.5% for the whole year FY21. We expect GDP for FY22 at 11.5%. We expect the economy to reach pre-pandemic output levels by the end of the calendar year 2021. That said, there are some risks that need to be watched out including rising commodity prices, slow global recovery, and the pace of recovery in the informal sector and contact intensive services with the resurgence of domestic cases," said Sakshi Gupta, senior economist, HDFC Bank.

"GDP growth returned to positive territory after contracting for two successive quarters. At component level, investment GDP recorded its first growth since December 2019. This recovery in investment is likely driven by capex spending.

"Weakness in private consumption also eased markedly during the quarter, even as it continued to show a contraction.

Consumption of durable goods has picked up following the lifting of lockdown, while those of services continue to weigh on private spending. Demand for contact intensive sectors will likely improve gradually as consumers regain confidence. While growth has returned to positive, the momentum would need to improve further for a sustained return to pre-COVID output levels," said Shashank Mendiratta, economist, IBM.

"India's GDP data for Q3 tells the same story, which many other nations are witnessing. Economic growth has turned positive for several countries in the Oct-Dec quarter, partly attributed to the policy stimulus and partly to the optimism created by COVID-19 vaccination. However, India's GDP growth is lowly positive in Q3 as the stresses continue in mining, manufacturing & services sectors. Indian growth during the pandemic is primarily supported by agriculture, construction activities and the Government's Capex spending. Consumption spending continues to stay weak both for the private and public sectors," said Rupa Rege Nitsure, group chief economist, L&T Finance Holdings. 

The per capita income in real terms (at 2011-12 prices) during 2020-21 is estimated to attain a level of Rs 85,929 as compared to Rs 94,566 in 2019-20 -- showing a contraction of 9.1% in 2019-20 as against 2.5% growth in the previous fiscal, it stated.

The per capita income at current prices during 2020-21 is estimated to be at Rs 1,27,768, a decline of 4.8% as compared to Rs 1,34,186 during 2019-20.

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

"The data challenges in the case of other underlying macro-economic indicators like IIP (industrial production) and CPI (retail inflation), used in the estimation of National Accounts aggregates and specific measures, if any, taken by the government in the following months with a view to address the pandemic led economic situation will have implications on the subsequent revision of these estimates," the NSO said.

Estimates are, therefore, likely to undergo sharp revisions for the aforesaid causes in due course, as per the release calendar. Users should take this into consideration when interpreting the figures, it added.

The 0.4% growth in the December quarter shows that the economy has returned to pre-pandemic times and reflects a further strengthening of V-shaped recovery, the finance ministry said on Friday.

"Real GDP growth of 0.4% in Q3 of 2020-21 has returned the economy to the pre-pandemic times of positive growth rates. It is also a reflection of a further strengthening of V-shaped recovery that began in Q2 of 2020-21 after a large GDP contraction in Q1 followed one of the most stringent lockdowns imposed by Government relative to other countries," the ministry said in a statement.'

Recouping of GDP to the positive territory by posting a growth of 0.4% in the third quarter is a promising sign, as it portends the end of the pandemic-induced recessionary phase seen in the first half of the year, CII Director General Chandrajit Banerjee said.

The growth stimuli available from the Union Budget and the additional measures, including the PLI will lead to a sturdy growth path over the recovery horizon, he added.

"The real push will come in the Q4 (January-March) 2021 because lockdowns on many sectors, particularly hospitality and travel eased substantially during this quarter.

"It is hoped that it remains that way, given the uptick in Covid-19 cases in some pockets and in some states. Important to note that the states coming under uptick constitute a large part of industrial activity, and that is important for Q4 and the next financial year," Deloitte India partner Sanjay Kumar said.

The positive reading will lower the pressure on Reserve Bank of India, which did most of the heavy lifting in the past year through 115 basis points of interest-rate cuts and ensuring liquidity in the financial system. 

“The infection caseload in some parts of the country is, however, again creeping up,” Reserve Bank of India Governor Shaktikanta Das said earlier this week. “We need to stay vigilant and steadfast, and on our toes.”