Sharp 23.9% GDP fall in Q1 will take at least a year to recover: Economists

Current year will continue with a drop of 7-7.5% which is lower than the earlier anticipated 10%

With a slower fall in gross domestic product (GDP) in the quarter ended September 2020, both industry and economists are hopeful of demand recovery in the coming months. A full recovery, however, may still be a year away, they say. 

“The contraction of 7.5 per cent in GDP for Q2 was expected. It will improve further unless there is one more lockdown to tackle the second wave of Covid-19 cases. We are more than half way through the December quarter; it seems it will be better,” said Harsh Mariwala, chairman, Marico. 

Maruti Suzuki India Chairman R C Bhargava said the second-quarter numbers were much better than expected. 

“The economy has picked up much faster than what most experts thought. It’s a combination of the government measures as well as the innate strength of the Indian economy and its people. I have always maintained if the government and industry work together, we can do wonders.”

According to Govind Rao, former director, National Institute of Public Finance and Policy, the sharp fall of 23.9 per cent in the first quarter will need at least a year to be at the 2019 levels. “We are much better now with the revival hopefully continuing in the third (September-December 2020) quarter and positive growth in the fourth quarter. But the economy has fallen to such a level that it will take longer for growth, which will happen only in the third quarter of 2021-22.” A lot would, however, depend if the government took measures to address the structural issues in the economy that existed even before the Covid-19 pandemic, he added.

Agriculture, manufacturing, and electricity services are the three categories with positive gross value added (GVA) in Q2. Praveer Sinha, chief executive officer and managing director, Tata Power, said there was a pick-up in power demand from industry, but commercial demand continued to be a worry. “Power demand has reached the pre-Covid levels but growth is not seen as yet. The year may close with growth for the power sector,” said Sinha.

Though exports, too, have turned positive, the worry for economists is low government spending due to a limited fiscal headroom. “While both manufacturing and exports have picked up, the government spending is still a worry,” Sudipto Mundle, distinguished fellow at the National Council of Applied Economic Research, said.

Chandrajit Banerjee, director general of the Confederation of Indian Industry, said, “Though private consumption seemed to be weak in Q2, all anecdotal evidence points towards a stronger consumption scenario in the next quarter. An increase in government spending would help this momentum for more robust growth in the coming months.”

India Inc is upbeat about the growth prospects of the economy. "Q2 GDP numbers show that the economy is recovering. The government's efforts on stimulus and reforms are showing results. Hopefully, we will have positive growth in H2 FY21 and double-digit growth in FY22,” said Anil Agarwal, group chairman, Vedanta.

Pawan Goenka, managing director and chief executive officer, Mahindra & Mahindra, said: “Given how things have gone in the second quarter for many of the industries, it’s (GDP data) not a surprise. There are many industries which are still suffering, but many are back to normal. The only risk is the concern about the second wave, which may lead to lockdowns. But if it is contained and doesn’t become a disablement, the momentum seen in Q2 should continue."    

                

Sangita Reddy, president, FICCI, said the government should keep a close watch on the demand side. "While the festive season will continue till December and the earlier demand-oriented measures announced by the government will take effect, we feel it will be important to lend further support to consumption activity. The government can look at extending the consumption voucher idea to all rather than just government employees." 

Cement and steel are two sectors that are seeing some recovery because of increased focus on infrastructure and a recovery in agriculture. “Rural economy is really doing well and it seems like the government is doing things to leave more money with farmers which will create demand. We should end the year FY21 at perhaps negative 7 per cent GDP. The demand pattern is shifting to rural areas and the poor are also spending in improving quality of life more than anything else,” said Hari Mohan Bangur, managing director at Shree Cements.

Sectors such as automobiles, solar appliances and pipeline, along with real estate, which was laggard for quite some time, has picked up in the last few months, said Jayant Acharya, director (commercial and marketing), JSW Steel. “The uncertainty in the real estate segment has come down. Also, vaccine visibility along with lower interest rates, etc, is helping consumer sentiment. So I am bullish for the Q3 and Q4,” said Acharya.

With inputs from Viveat Susan Pinto and Shally Seth Mohile