ABP Decodes | India GDP Grows 0.4% To End Its First Recession Since Independence

The growth comes after two consecutive quarters of GDP contraction, leading to a technical recession last year, the official data showed Friday as a moderate recovery fuelled by easing the COVID-19 restrictions.

(Representative Image/ Getty)

New Delhi: Ending its first recession since independence in 1947, India's economy grew 0.4 per cent year on year in the December of 2020, as pent-up demand, festive spending, and a jump in government expenditure helped revive the growth of the ailing economy due to the COVID-19 pandemic.

"GDP at constant (2011-12) prices in Q3 of 2020-21 is estimated at Rs 36.22 lakh crore, as against Rs 36.08 lakh crore in Q3 of 2019-20, showing a growth of 0.4%," National Statistical Office (NSO) said.

The growth comes after two consecutive quarters of GDP contraction, leading to a technical recession last year, the official data showed Friday as a moderate recovery fuelled by easing the COVID-19 restrictions.

India's GDP is now forecast to shrink by 8% in FY21, up from the 7.7% estimate published in January, meaning the economy is projected to grow at a slower pace from January to March 2021 than anticipated.

Where the growth came from?

Agriculture: Agriculture and allied sector continued its growth trajectory, growing by 3.9% in the December quarter, building on its previous growth of 3% in the September quarter. Agriculture has been the only bright spot in the economy since the beginning of the pandemic.

Manufacturing: The manufacturing sector expanded by 1.6% in the December quarter from a year earlier, after contracting 1.5% in the September quarter, as factories opened during the quarter, and labour and raw materials problems were resolved.

Construction: After registering a de-growth of 7.2% in the September quarter, construction activity revived in the December quarter leading to a growth of 6.2%, showed the government data.

Utilities: Building on the growth of 2.3% in the September quarter, utilities comprising electricity, gas, water supply, and other services registered 7.3% growth in the December quarter.

Financial, real estate, and professional services: The largest chunk of India's organized market witnessed a rise of 6.6% growth in the December quarter compared to a contraction of 9.5% in the September quarter.

The laggards

Mining and quarrying: The sector contracted 5.9% during the December quarter, lesser than the contraction of 7.6% registered in the September quarter.

Trade, Hotels, Transport, Communications and Broadcasting services: The sector further contracted 7.7% in the December quarter after a contraction of 15.3% in the September quarter and a de-growth of  47.6% in the June quarter.

Consumer confidence: Consumer spending, a key indicator of domestic demand, has continued to fall, although at a slower pace. Despite the festive season, consumer spending fell 2.4% in the December quarter, hinting that a rebound in private demand is still some time away.

The measures taken by the Government to contain the spread of the Covid-19 pandemic have had an impact on the economic activities as well as on the data collection mechanisms.

The data challenges in the case of other underlying macro-economic indicators like IIP and CPI, used in the estimation of National Accounts aggregates and specific measures, if any, taken by the government in the following months to address the pandemic led economic situation will have implications on the subsequent revision of these estimates.

"Estimates are, therefore, likely to undergo sharp revisions for the aforesaid causes in due course, as per the release calendar. Users should take this into consideration when interpreting the figures," said the government statement.

Expert's Comment

The GDP growth of 0.4% for the third quarter of FY' 21 is no surprise, but it marks a significant turnaround into the Indian economy returning to a positive trajectory after sharp drops in the first two quarters, even as the war against Covid-19 is continuing, said ASSOCHAM Secretary General Deepak Sood.

“The 4th and the last quarter of the current fiscal should be far better. As pointed out by ASSOCHAM in its earlier projection, the real recovery would be seen in the FY ‘22, beginning with the first quarter and then picking up the pace later,” Sood said.

He said the services sector which contributes maximum to the GDP remained muted for the better part of the year 2020-21 and it is only in the last few months that the re-opening had started; the same should be reflected in the coming months. With the rollout of vaccines against the Covid-19 picking up pace, we expect the services too catching up.