India’s gross domestic product (GDP) grew by 8.4% in the July to September quarter, compared to a 7.4% contraction a year ago, with the economy’s gross value added(GVA) rising 8.5%, the National Statistical Office said on Tuesday.
Factoring in the first quarter GDP growth of 20.1%, the first half of this year has recorded 13.7% growth and India is likely to record double digit growth for 2021-22 as a whole, the Finance Ministry’s Chief Economic Adviser (CEA) Krishnamurthy Subramanian said, seeking to emphasise that the recovery process is continuing to play out.
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Economists, however, were not fully convinced about the extent and durability of this recovery and reacted with caution.
Though the absolute GDP in the second quarter (Q2) was 0.3% higher than pre-pandemic levels, there were still many worrying areas, particularly the insipid private consumption spending that still languished below pre-COVID levels along with activity in employment-intensive sectors like construction and contact-intensive sectors like retail and hotels.
The base effect of negative growth last year also helped nudge the GDP numbers up, most independent economists say, although the CEA said the base effect by itself does not make the recovery ‘less noteworthy’.
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Crisil chief economist Dharmakirti Joshi said investments, largely from the Government, continued to remain the key growth drivers while private consumption is yet to show a decisive recovery.
“On the domestic demand side, only gross fixed capital formation (GFCF) emerged positive in Q2 over the 2019-20 level,” noted D.K. Srivastava, chief policy adviser at EY India.
“Private final consumption expenditure (PFCE), in terms of its magnitude, was still lower,” he said.
“Even if the pace of recovery is sustained in the next two quarters, India’s GDP for the year is expected to be only marginally higher than that in 2019-20 (by around 2%),” CARE Ratings’ economists Madan Sabnavis and Kavita Chacko said in a note, retaining their GDP growth forecast for the year at 9.1%.
“Demand and investments are yet to see a meaningful and durable pick-up. Improvements in these are expected to be limited and gradual given that even before the pandemic, the domestic economy was grappling with low demand and subdued investment climate,” they said, adding that fresh domestic and external challenges and uncertainties abound, including inflation and new variants of the COVID virus.
Among key sectors, Agriculture, Forestry and Fishing was one of the sectors doing the heavy lifting for growth, with GVA rising 4.5% in Q2, the same level as the previous quarter and stronger than the 3% recorded in Q2 of 2020-21.
Public Administration, Defence & Other Services recorded the highest GVA growth among different segments of the economy at 17.4%, followed by Mining and Quarrying that grew 15.4% and Electricity, Gas, Water Supply & Other Utility Services that rose 8.9%.
Manufacturing GVA grew by a moderate 5.5% compared to a 1.5% contraction in the second quarter last year. The manufacturing sector value-added had grown by 49.6% in Q1 of this year, compared to a 36% drop in the first quarter of the COVID-affected previous year.
The employment-intensive sectors — Construction and Trade, Hotels, Transport, Communication & Services related to Broadcasting — recorded a GVA uptick of 7.5% and 8.2%, respectively, compared to negative growth rates of 7.2% and 16%, in Q2 of last year.
While the growth prints were higher than expected for ICRA chief economist Aditi Nayar, she said the disaggregated data does not convey meaningful signals of a durable recovery, especially with private final consumption expenditure continuing to trail the pre-COVID level.
“The growth of manufacturing, construction and trade, hotels etc. trailed our forecasts, suggesting that rising input costs bit corporate margins, and contact-intensive services continued to trail the pre-COVID levels,” she said.
GVA from the Financial, Real Estate & Professional Services sectors rose 7.8% in Q2 from a 9.1% contraction last year and a modest 3.7% growth in Q1 of this year, but still remained below the pre-pandemic level of 2019-20.
Mr. Srivastava termed the pick-up in investment as a positive signal, but noted that private consumption demand would pick up as employment and incomes grow in small and medium sectors which,in turn are linked to the recovery in the services sectors especially the trade and hotels.
The CARE Ratings economists pointed out that the high difference of over 9% between GDP in nominaland real terms, indicates rising inflation pressures.
Mr. Srivastava termed the pick-up in investment as a positive signal, but noted that private consumption demand would pick up as employment and incomes grow in small and medium sectors which, in turn, are linked to the recovery in the services sectors especially the trade and hotels.
The CARE Ratings economists pointed out that the high difference of over 9% between GDP in nominal and real terms, indicates rising inflation pressures.