In recent news, the Indian economy has managed to pull itself out of a technical recession. In its third quarter (October to December) of the 2020-21 fiscal year, the country observed a growth rate of 0.4%. This glide towards growth can majorly be attributed to improvements across sectors such as manufacturing, construction and agriculture. Previously, the Gross Domestic Product (GDP) had suffered during the Covid-19 pandemic with contractions by 24.4% and 7.3% in the April-June and July-September quarters respectively. It’s worth noting that a technical recession is a term used when a nation experiences continuous decline in GDP for two consecutive quarters.
Growth Projections: NSO vs Economic Survey vs Reserve Bank of India
The National Statistical Office (NSO) has projected the full fiscal year (2020-21) to see an overall contraction of 8%. This estimate is slightly higher than the predictions put forth by the Economic Survey (7.7%) and the Reserve Bank of India (7.5%). Meanwhile, the real GDP growth for the third quarter stands at 0.4%. Notably, during the same timeframe last year, the economy had grown by 3.3%.
Performance Across Major Sectors
The performance of major sectors played a crucial role in the economic turnaround. The industrial sector, encompassing manufacturing, electricity and construction, recorded a growth rate of 2.6% in the third quarter. However, the services sector, accounting for the largest share in the GDP at 57%, continued to contract with a 0.9% fall year-on-year.
Core Sector Output
On another note, India’s eight core sectors witnessed a slight rise in output by 0.1% in January 2021. Key players in this minimal increase include the electricity sector with a rise of 5.1%, fertilizers at 2.7% growth and steel production at 2.6% growth.
Agriculture Sector: A Beacon of Growth
The agricultural sector showcased remarkable resilience, registering a growth of 3.9% in the October-December quarter.
Investment Demand & GFCF
A notable factor in this economic upturn is the newfound positive momentum in investment demand (Gross Fixed Capital Formation – GFCF) which recorded a growth of 2.6% in the third quarter.
Increased Government Expenditure
The resurgence of Government Final Consumption Expenditure (GFCE) in Q3 and the Centre’s capital expenditure increased year-on-year by significant percentages too.
Recovery: A V-shaped Path
The third quarter GDP numbers manifest the success of the government’s initial policy prioritizing health over economy. The sharp V-shaped recovery was driven by rebounds in Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF).
Other Economic Indicators
Despite signs of recovery, certain economic indicators point towards continued struggle. Domestic consumption continued to contract, contributing 58.6% of GDP in Q3. Similarly, according to GVA estimates, 2020-21 will see a contraction of 6.5%. In nominal terms, taking into account inflation, GDP is estimated to be at (-) 3.8% for 2020-21.
