Recession Has Officially Ended In India As GDP Jumps By 0.4%; But Govt Is Cautious

With improvement in in manufacturing, construction and agriculture, Indian economy grew 0.4 per cent and came out of technical recession in October-December 2020.

However, as against the the earlier estimated 7.7 per cent, Indian economy shall face a deeper 8 per cent contraction for the full year 2020-21 according to the second advance estimates released by the National Statistical Office on Friday.

V-shaped Recovery Strengthened but Not out Of Danger

The finance ministry in its statement said the India was not yet out of the danger of the pandemic but the Q3 numbers were a reflection of the further strengthening of a V-shaped recovery.

In the aftermath of covid-19, GDP had contracted by 23.9 per cent and 7.5 per cent in the April-June and July-September quarters, hence marking a technical recession. The revised GDP rates for Q1 and Q2 are (-)24.4 per cent and (-)7.3 per cent, respectively.

In Q3 as against a contraction of 1.5 per cent in the previous quarter and 2.9 per cent contraction in October-December 2019, the manufacturing sector grew 1.6 per cent.

As for the construction sector, there was a growth of 6.2 per cent in October-December 2020 as against a contraction of 7.2 per cent in the previous quarter and 1.3 per cent contraction during the same period last year.

In October-December with 3.9 percent growth agriculture fared well as compared to the 3 per cent growth in July-September and 3.4 per cent growth during the corresponding quarter last year.

Financial, real estate and professional services grew 6.6 per cent as against 9.5 per cent contraction in the previous quarter and 5.5 per cent growth in the corresponding period last year.

There has been a contraction as sectors like Mining, trade, hotels, transport, communication and broadcasting services and public administration services stayed in negative territory in the third quarter.

Aditi Nayar, Principal Economist, ICRA said that most probably due to the unintended consequence of the back-ended release in the Government of India’s subsidies GDP is implicitly projected by the NSO to slip back into a contraction of 1.1 per cent in Q4 FY2021.

Improvement In Sentiment Due To Vaccine Rollout

There is an improvement in sentiment due to the vaccine rollout but the consumption can only grow the economy modestly in the near term. This is due to the fact that healthier income generation is rebuilding the savings buffers.

The rapidly escalating inoculation drive in the country is boosting the economy as activity levels are increasing.

As against earlier estimate in previous year of 7.2 per cent and 3.9 per cent, growth rate in terms of gross value added (GVA) is seen contracting 6.5 per cent in 2020-21.

In October-December, an indicator for private investment, gross fixed capital formation picked up pace to grow 2.6 per cent in October-December.

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