With GDP growth of 0.4% in Q3, India exits ‘technical recession’

Our Bureau New Delhi | Updated on February 26, 2021

Industry grows 2.6%; services still in negative; NSO sees 8% contraction for FY21

India exited ‘technical recession’ with GDP growth estimated at 0.4 per cent in the third (October-December) quarter of 2020-21. For the full fiscal year, however, the National Statistical Office (NSO) has projected a contraction of 8 per cent, higher than the forecasts of the Economic Survey (7.7 per cent) and the Reserve Bank of India (7.5 per cent).

According to the NSO’s second advanced estimate, with improved performance of manufacturing, electricity and construction, industry recorded a growth rate of 2.6 per cent in the third quarter against the contraction in the first two. However, services, with largest share in GDP at 57 per cent, still remained in the contraction zone with a 0.9 per cent fall year-on-year.

The per capita income at current prices during 2020-21 fell 4.8 per cent to around ₹1.27 lakh, from ₹1.34 lakh in 2019-20.

For April-June quarter (Q1) and July-September (Q2), the contraction numbers were revised from 23.9 per cent to 24.4 per cent and 7.5 per cent to 7.3 per cent, respectively. This revision and the projection for the third quarter help in arriving at the new contraction estimate for the whole fiscal year, while the numbers of the Economic Survey and the RBI were based mainly on the estimates for the first two quarters.

The NSO lowered the growth number of 2019-20 to 4 per cent from 4.2 per cent.


Investment trend, the key

Former Chief Statistician Pronab Sen feels that investment trends during the current fiscal year had an impact on GDP estimates for the second and third quarters and will probably affect the fourth, too. “However, the key issue is new investment. This will determine the growth prospects for coming fiscal years,” Sen said, adding that the first quarter of the next fiscal year is expected to see very high growth because of the low base.

A Finance Ministry statement said that besides the overall uptick in the economy, the resurgence of Government Final Consumption Expenditure (GFCE) in Q3 thanks to Centre’s capex increasing year-on-year by 129 per cent in October, 249 per cent in November and 62 per cent in December also helped. The fiscal multipliers associated with capex are 3-4 times larger than the GFCE as capex induces much higher consumption spending than normal income transfers. However, the GFCE did play a critical role since April 2020 as apart from supporting lives and livelihoods it provided the initial stimulus to the economy, it said.

V-shaped recovery apace

“Significant recovery in manufacturing and construction augurs well for the support these sectors are expected to provide to growth in FY 2021-22,” it said while emphasising that the current growth estimate is reflection of a further strengthening of V-shaped recovery that began in Q2.

Disaggregated data show that domestic consumption continued to contract, at 58.6 per cent of GDP in Q3, as against 60.2 per cent during corresponding period of last fiscal. Similarly, government spending, as reflected by the GFCE, dipped a tad to 9.8 per cent of GDP from 10 per cent. However, investments, as indicated by Gross Fixed Capital Formation, touched 33 per cent of GDP from 32.3 per cent in Q3 FY 20.

Published on February 26, 2021

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