After contracting up to 15.8% in the April to September period of fiscal 21 – a drop of 24.4% in the first quarter and a decrease of 7.3% in the July quarter to September (revised data) – due to Covid – Due to the pandemic and national and regional lockdowns, economists had predicted that GDP growth would experience a marginal expansion in the October to December quarter. Therefore, after two consecutive quarters of cascading shifts, third-quarter data released by the National Statistics Organization (ONS) on February 27 came as no surprise, as third-quarter gross domestic product slipped back. the year. annual growth, albeit small in magnitude and on a low basis, thus ending the technical recession in India.

As GDP was expected to return to positive territory, there was uncertainty about the extent of the steady recovery, which had started in the last quarter. According to the average estimates of 10 economists polled by Bloomberg, GDP is expected to increase by 0.5% in the third quarter. State Bank of India chief economist Soumya Kanti Ghosh had projected GDP growth of around 0.3%, based on the bank’s SBI Nowcasting Model. Rating agency ICRA had estimated a rise of 0.7%, while DBS Bank expected the third quarterly growth to be 1.7%. NSO data shows India’s third-quarter GDP growth rate was as expected: a marginal increase of 0.4%, reaffirming that the economy has managed to emerge from the crisis caused by the pandemic of ‘by the end of 2020.

Updated forecasts

However, current fiscal year GDP is expected to contract by a slightly larger margin of 8 percent, according to the government’s updated official forecast. The first estimates put forward predicted a contraction of 7.7 percent. This means a deeper drop in full-year GDP, which implies a contraction of 1.1 percent in the January-March quarter. The caveat is that all screenings are conditional on the rate of viral infections being kept under control.

The latest figures for the third quarter also show that the manufacturing sector, which had fallen 1.5 percent in the second quarter, grew 1.6 percent in the third quarter. As expected, the agricultural sector, which stood out in the previous two quarters, continued to grow, registering an expansion of 3.9 percent. Agriculture was also the rare bright spot which had grown by 3 percent each in the previous two quarters.

However, private consumption spending, which is a crucial measure of consumer demand, continued to contract, falling 2.3 percent in the third quarter, although the size of the contraction declined from the second. quarter when it had declined by 11 percent. Public spending, on the other hand, also fell in the last quarter. While the economy has managed to emerge from the recession and the government believes the positive growth rate was a sign of rebirth in pre-pandemic times, the economy, the government admitted, is still not out of the woods. This calls, according to experts, the continuation of fiscal and monetary measures to support the fragility of the economy. So what are the main takeaways from the latest GDP data?

Mixed bag

NSO data is a mix of many positives and some negatives. Festival consumption and pent-up demand should have helped the economy grow by more than 0.4%. But that did not happen and consumer confidence remains low. The revised growth estimates for the full fiscal year to minus 8 percent, compared to RBI estimates of minus 7.5 percent, also suggest slower-than-expected growth in the manufacturing and services.

While the manufacturing sector has rebounded and expanded by 1.6% compared to the same period a year ago, after declining 1.5% in the previous quarter and agriculture continues its trajectory growth, the financial and real estate sectors also recorded growth of 6.6%. hundred; in the last quarter. This category had a dismal performance, contracting by 9.5%.

Consumer spending, a key indicator of domestic demand in a consumer-led economy, continued to decline, although the pace of the decline slowed. A 2.4 drop in consumer spending in a crucial festive quarter suggests that a rebound in private demand is still far away and could impact the overall economic scenario in the short to medium term.

Likewise, government spending continued to decline to 1.1%, although the pace of decline slowed. Gross fixed capital formation, a measure of investment demand, rose 2.6%, representing a strong recovery after contracting 6.7% and 46% respectively in the second and first quarters of the year. the current year.

Green signals

Although slightly below expectations, the fact that the economy turned green in the third quarter indicates that the measures taken by the government to contain the spread of the virus have had a positive impact on growth. Going forward, some economists see a continuation of a K-shaped recovery, as opposed to the government’s claim of a V-shaped recovery, with some sectors growing faster than others.

But there is also cause for concern that the virus is once again raising its ugly head in some states, causing daily cases to rise in the past two weeks. While some experts see the economy reaching pre-pandemic production levels by the end of 2021, others are not so optimistic and see a full recovery not until mid-2022. Indeed, while large firms have almost returned to their normal potential, the real pain lies in the informal sector – SMEs – where millions of jobs have been lost and production levels have yet to pick up.

So does third quarter GDP growth call for celebration? Not really, but the many positive aspects are to be welcomed. The Indian economy is a large and complex economy with a large unorganized sector. Therefore, revisions to GDP figures are not uncommon. The Q1 and Q2 GDP numbers for the current fiscal year have been revised – one up, the other down – and it is possible that the Q3 numbers may also see an upward revision or downward because, as the NSO has said, “the Covid-19 pandemic has had an impact on economic activities as well as on the data collection mechanism … The estimates are therefore likely to undergo sharp revisions for the above-mentioned cause in due time in accordance with the publication schedule. So the picture is far from unambiguous.

The author is a senior freelance journalist.