Indian economy contracts 7.5% in 2nd quarter, sequential improvement points to recovery

Q2 GDP growth shows surprising resilience Is worst over for Indian economy

India's GDP fell 7.5 per cent during September quarter

The GVA declined by 7 per cent.

Although the figures released on Friday were an improvement on the record 23.9 percent contraction recorded last quarter, they indicate that Asia's third-largest economy is in for a tough fight as it attempts to revive demand and create jobs even as coronavirus infections climb.

The pent-up demand following a nationwide lockdown ensured that India's gross domestic product (GDP) contraction in July-September was less worse than what the economists were expecting.

While imports of goods and services were down 16.4 per cent, exports were up by just 0.5 per cent. Investment growth continued to contract with gross capital formation or investments was 7.5% lower in Q2 FY21 from an year ago, according to an analysis by Care Ratings. Though the restrictions have been gradually lifted, there has been an impact on the economic activities.

Chief Economic Adviser Krishnamurthy Subramanian said the Q2 growth numbers were encouraging but there was need for caution as well.

Sunil Sinha of India Ratings said if the current trends sustain then a faster recovery is possible.

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The GVA includes taxes, but excludes subsidies. "Indian economy had picked up momentum by February 2020, only to be halted by COVID-19 outbreak".

Annual GDP has contracted on four previous occasions, the last in 1980-81.

The manufacturing sector posted a paltry growth of 0.6% in the September quarter compared to the 0.6% contraction in the second quarter of FY20 and experts attributed it to lifting of lockdown restrictions.

During July-September, the services sector was the worst hit, with trade, hotels, transport, communication and broadcasting services posting the sharpest contraction of 15.6 per cent among the eight major sectors.

Farming continued to be a relatively bright spot, while manufacturing activity also increased during the July-September period after plunging almost 40 percent during the previous quarter due to the lockdown.

"Hence, that and further spread of Covid-19 will remain the key monitorables".

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Some sectors have bounced back with resumption of economic activities. A Reuters poll, for instance, predicted an 8.8 per cent contractoin. Public spending was down 12 per cent.

The NSO data also showed that private consumption final expenditure declined in the quarter, though at a slower pace.

As expected, agriculture held up yet again, clocking a growth of 3.4 per cent for the second consecutive quarter.

He said because of the uncertainty due to a second wave of cases across the country, it will be hard to predict if economic growth reaches positive territory in October-December and January-March quarters. According to RBI, there is a strong likelihood that the Indian economy will return to positive growth in Q3.

Despite some signs of improvement in growth seen in October's macro data like IIP and PMI, RBI governor Shaktikanta Das said on Thursday, ahead of the GDP data that a recent surge in infections presents downside risks for the economy.

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