V-shaped recovery, GDP back to positive post 2-quarter decline

Sandeep Dikshit

Tribune News Service

New Delhi, February 26

Riding on a good showing by farm, services and construction sectors, the Indian economy entered the positive territory with a growth of 0.4 per cent in the Q3 (October-December) quarter after contracting for two quarters in a row.

With this, the economy has returned to the pre-pandemic level of positive growth and is also a reflection of a further strengthening of a V-shaped recovery that began in Q2 (July-September) of 2020-21. According to data released by the National Statistical Office, the farm sector recorded a growth of 3.9% in Q3, up from 3.3% in Q1.

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The recovery in manufacturing and construction augurs well for the support these sectors are expected to provide to the growth in FY2021-22. The real GVA in manufacturing has improved from a contraction of 35.9% in Q1 to a positive growth of 1.6% in Q3. In construction, the recovery has been from a contraction of 49.4% (Q1) to a positive of 6.2%.

The trade and hotel industry registered a contraction of 7.7%, the sectors continuing to bleed due to Covid. After a large GDP contraction in Q1 (April-June) had followed one of the most stringent lockdowns in the world. The second advance estimates the contraction of GDP at 8.0 per cent in 2020-21.

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The economy, the government warned, was not yet out of the woods and the figures appeared to tally with the “foresight of an imminent V-shaped recovery”.

The recovery has been driven by rebounds in both Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF). While the GFCF has improved from a contraction of 46.4% in Q1 to a positive growth of 2.6% in Q3, the PFCE has recovered from a contraction of 26.2% in Q1 to a much smaller contraction of 2.4% in Q3.

The high GFCF in Q3 was also triggered by Capex in Central Government that increased year-on-year by 129% in October, 249 per cent in November and 62% in December 2020.

These sectors are vital to the economy to achieve a growth of 11% or more in 2021-22 as they will be impacted most by the counter cyclical fiscal policy that budgets fiscal deficit at 6.8% of GDP.

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