GDP expected to expand during Oct-Dec quarter

With the country recording improved numbers in terms of various economic indicators, the prospects for GDP growth have brightened. ‘Technical recession’ in India is set to end in October-December (third quarter) with the GDP expected to be back in expansion mode, according to various agencies that have forecast a growth of between 0.1 and 0.7 per cent during the quarter.

The Central Statistical Organisation (CSO) will release the GDP number for the third quarter on Friday, February 26.

The industrial growth rates based on the Index of Industrial Production (IIP) during October, November and December have been 4.2 per cent, (-) 2 per cent and 1 per cent, respectively. Similarly, the PMI (Purchasing Managers’ Index) for manufacturing ranged between 56.4 and 58.4 during these three months, while the PMI for services was in the range of 52.3 to 54.1. An index reading above 50 shows expansion. All these had a positive impact on GST collections during three months at over ₹ 1.05 lakh crore in October, ₹1.04 lakh crore in November and over ₹ 1.15 lakh crore during December.

The agriculture sector has been a silver lining during the current fiscal, reporting growth during the first two quarters when two bigger sectors – services and industry – were in the red. During the fiscal, food grains production is estimated to reach over 297 million tonnes with bumper rabi crops. This will also have an impact on the third-quarter number.

Amidst the pandemic, India’s GDP contracted by a record 23.9 per cent during the April-June quarter and 7.5 per cent during the July-September quarter. As two successive quarters of contraction means that economy is in recession, it was Reserve Bank of India that first declared that India has entered into a technical recession in the first half of 2020-21, the first time in history. This remark was made in the November edition of RBI’s monthly bulletin, before the government formally announced the second quarter GDP number.

Role of fiscal stimulus

Again, it was the RBI that declared in December that the third quarter is expected to see growth. It said the fiscal stimulus is increasingly moving beyond being supportive of consumption and liquidity to supporting growth-generating investment. It projected growth of 0.1 per cent during the third quarter.

ICRA estimates third quarter growth to be 0.7 per cent, a turnaround from the 7.5 per cent contraction in July-September quarter. The agency has listed many reasons including a pickup in private consumption and government spending for the recovery. According to Aditi Nayar, Principal Economist with ICRA, “the revival in Central government spending supported the Indian economy’s exit from the recession in Q3 FY2021.”

However, DK Pant, Chief Economist at India Ratings & Research (Ind-Ra), has a different take. He said that during FY 2019-20, the share of services in private final consumption expenditure was 51.6 per cent, followed by non-durable goods at 38.5 per cent, semi durables at 6.6 per cent and durables at 3.3 per cent. “The services sector is still in slow lane and durable goods growth in Q3 was 6.4 per cent (whose contribution to private final consumption is less than 10 per cent). Although the government is doing some heavy lifting by spending more, it is unlikely that growth in the third quarter will reach positive territory,” he said, while estimating contraction during the third quarter at 0.8 per cent.