Economists observed that the country could see some growth in the December quarter, but it may not be enough to be categorised as a bounce back. The economy may see a spurt only by March next year provided the Covid vaccine is released in the country and the government schemes announced recently start impacting the country’s manufacturing growth, said analysts.
The GDP contracted by 7.5% between July and September, compared to the same quarter a year before. Between April to June Indian economy contracted by 23.9% as against the same period in 2019. While the contraction—7.5%– was much lower than what many predicted, this has caused fear that the country could slip further into recession.
“The contraction in the first two quarters of this fiscal year is no surprise. Since the quarterly data of GDP is released with a lag of two months, we should look at these numbers in the rear-view mirror keeping in perspective that recent high-frequency data possibly suggest a quicker rebound ahead. The possibility of a release of several highly effective vaccines soon gives us hope that there is an end date to the pandemic, even if it may not be immediate,” said Rumki Majumdar, economist, Deloitte India.
As per Care Rating analysis the GDP growth although expected to improve in the remaining two quarters of 2020-21 with the improved pace of pickup in economic activity across most sectors. The economy however continues to face downward pressure from the sustained spread of the pandemic in the country and the re-imposition of restrictions in various regions.
Economists point out that manufacturing sector saw a recovery and turned positive at 0.6% in in the September quarter as against a steep decline of around 39%. The key disappointment emanates from public administration, defence and other services where the contraction has increased, said economists.
“This is clearly due to contraction in government expenditure, which is reflected in the demand side of the GDP numbers. Government consumption expenditure has shrunk to an unprecedented level of (-)22.2%, indicating weak fiscal stimulus. Clearly, most of the enhanced government borrowing has gone to make up for the shortfall in tax and non-tax revenues leading to a contraction of (-)1.9% in centre’s capital expenditure and a small positive growth at 0.4% in its total expenditure up to the first seven months into the fiscal year,” Dr. D K Srivastava, Chief Policy Advisor, EY India said.
Consumption demand and investments which are necessary to propel the economy would continue to be tepid and are unlikely to see a noteworthy improvement during the course of the year, said analysts “We expect the country’s GDP to contract further by up to 7.9% in FY21,” Care rating report said.
“Three drivers will ensure a sustained economic revival and rehabilitation; inclusive job growth, a robust services sector rebound, and a sustained recovery in private demand. Stimulus announcements by the government, liquidity measures by the RBI, and difficult reforms (such as the labour and agricultural reforms) will aid in all three in the months ahead,” said Majumdar of Deloitte.
The GDP figures however come at a time when Foreign Portfolio investors have pumped in about Rs 68,000 crore in one month alone in Indian equities. The figure stands at around Rs 1.5 lakh crore in the last eight months. Global investors have been moving away from safe bets such as the US dollar and gold and investing in equities.