The economy escapes recession as GDP rises by 0.4%

In October-December 2020, the Indian economy recovered from a technological contraction and expanded by 0.4 percent with reforms in manufacturing, construction, and agriculture. The economy, however, will contract by a deeper 8% for the full year 2020-21, according to the National Statistical Office’s second advance forecasts published on Friday, compared to an earlier forecast of 7.7%. The NSO’s second advance projections are determined by extrapolating metrics from the first nine months of the fiscal year, such as the Index of Industrial Output (IIP). “Sharp changes” were likely to be made to the figures, as data collection for the IIP and CPI was hampered by the constraints imposed in March last year in view of the pandemic.

The Finance Ministry said in a statement that the Q3 numbers represent the strengthening of a V-shaped recovery, but cautioned that India was still in danger of a pandemic. The manufacturing industry expanded 1.6 percent in the third quarter, compared to a contraction of 1.5 percent in the previous and a contraction of 2.9 percent in October-December 2019. The building sector has gained steam, rising by 6.2% in October-December 2020, compared to a reduction of 7.2% in the intervening period and a contraction of 1.3% in the same timeframe last year. For the third quarter of this year, the Inflation rate forecast of 0.4 percent is higher than the 0.1 percent growth expected by the Reserve Bank of India. The economy grew by 3.3 percent in the same period last year.

Development in agriculture improved and rose by 3.9% in October-December, compared to 3% in July-September and 3.4% in the same quarter of last year. Economic, real estate and technical services increased by 6.6% relative to a contraction of 9.5% in the preceding quarter and an increase of 5.5% in the same span last year. In the third quarter, mining, commerce, restaurants, shipping, communication and broadcasting systems, and public administration services tended to linger in negative territory, recording a contraction of 5.9%, 7.7%, and 1.5%, respectively. Measurably, the Indian economy reported a 10.4 percent contraction for April-September, compared to a 4.4 percent expansion last year.

Economists predicted only a minor turnaround in the coming months, as an 8% decline for the year suggests another contraction in the fourth quarter. “Interestingly, the NSO indirectly projects GDP to contract by 1.1 percent in Q4 FY2021, that could be an unforeseen consequence of the Government of India’s subsidy back-end release,” stated Aditi Nayar, Principal Economist, ICRA. In Q4 FY2021, various lead indicators have so far lost steam relative to the improved momentum induced by the vaccine rollout. We expect demand growth to increase only modestly in the medium term, as part of the healthier generation of income to recover the savings reserves that were depleted during the lockdown by those in the informal economy, touch-intensive industries, and the self-employed, she added.

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