India ‘out of recession’, GDP grows 0.4%

Agri stays resilient, manufacturing returns to growth; NSO widens FY21 estimate to 8% contraction

India’s economy resurfaced to growth territory in the third quarter of fiscal year (FY) 2020-21, clocking a 0.4% rise in the gross domestic product (GDP), as per data from the National Statistical Office (NSO).

GDP had shrunk in the first two quarters by 24.4% and 7.3% as per revised data, amid the COVID-19 pandemic and lockdowns, marking a technical recession. The NSO has also revised its advance national income estimates for FY21 to project an 8% decline in GDP, compared with the 4% growth seen in FY20. The NSO had earlier estimated a 7.7% shrinkage for FY21.

The Finance Ministry termed the 0.4% real GDP growth in Q3 as a return to ‘the pre-pandemic times of positive growth rates’ and a reflection of a ‘further strengthening of V-shaped recovery that began in Q2’.

India’s farm sector remained resilient, clocking a 3.9% growth in Gross Value Added (GVA) to the economy in the October-to-December quarter, after recording a 3.3% and 3% rise in the first two quarters, respectively.

For the full year FY21, the NSO expects only two sectors to record positive growth in GVA — agriculture (3%) and electricity, gas, water & other utilities (1.8%).

Overall GVA is expected to contract 6.5% in the year, led by an 18% dip in trade, hotels and other services, a 10.3% decline in construction, and an about 9% fall in mining and manufacturing GVA.

In Q3, manufacturing, construction and financial, real estate and professional services staged a return to growth for the first time in the year after two bad quarters. Manufacturing GVA grew 1.6% after dipping 35.9% and 1.5% in the first two quarters. Construction saw the sharpest recovery – with GVA rising 6% after falling 49.4% and 7.2%.

Services including trade, hotels, transport and communication remained in trouble, with GVA declining 7.7%, though it was better than the -47.6% and the -15.3% reading in Q1 and Q2.

The Finance Ministry said the resurgence in manufacturing and construction augured well for them to drive growth in FY22 and added that services, which account for more than 50% of India’s GVA and the biggest source for pushing consumption, had done remarkably better in Q3. “Real GVA in services has also improved from a contraction of 21.4% in Q1 to a negligible contraction of 1% in Q3,” the Ministry said.

“Given the uncertainties around investments and exports, recovery prospects… hinge critically on uptick in private consumption… one would expect support from public policy,” said Siddhartha Sanyal, chief economist and head of research, Bandhan Bank.

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