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Expert views: India's economy grows 0.4% y/y in Oct-Dec quarter

·6-min read
FILE PHOTO: Outbreak of coronavirus disease (COVID-19) in Mumbai

BENGALURU (Reuters) - India's economy expanded by 0.4% year-on-year in the October-December quarter, returning to growth after shrinking for two straight quarters, government data showed on Friday.

The readout for the December quarter was a tad lower than the 0.5% growth forecast of analysts in a Reuters poll.

COMMENTARY

SHASHANK MENDIRATTA, ECONOMIST, IBM, NEW DELHI

"GDP (gross domestic product) growth returned to positive territory after contracting for two successive quarters. At component level, investment GDP recorded its first growth since December 2019. This recovery in investment is likely driven by capex spending.

Weakness in private consumption also eased markedly during the quarter, even as it continued to show a contraction. Consumption of durable goods has picked up following the lifting of lockdown, while those of services continue to weigh on private spending.

Demand for contact intensive sectors will likely improve gradually as consumers regain confidence. While growth has returned to positive, the momentum would need to improve further for a sustained return to pre-COVID output levels."

KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU

"The Indian economy has turned a corner during 4Q20, growing by 0.4% yoy, slightly lower than the consensus expectation, though we expected one final quarter of contraction.

To us, the data appears to be at variance with the high frequency data. Disaggregated data shows that domestic consumption continued to contract while real government spending dipped too, albeit marginally.

A sharp pick up in investment enabled the economy to record a marginally positive growth as did a lower trade deficit on account of less-than-robust economic activity. Going forward, we believe that investment and not consumption will be India’s growth driver."

ADITI NAYAR, PRINCIPAL ECONOMIST, ICRA, GURUGRAM

"With growth re-emerging in both GDP and GVA (gross value added) in Q3 FY2021, the pandemic-induced technical recession in India has ended, in line with our expectations. The NSO (National Statistical Offic) has pegged the pace of growth in Q3 FY2021 at 0.4% for GDP, and a higher 1.0% for the GVA, whereas we had projected both at 0.7%.

The YoY performance of the components of GDP indicates a welcome growth of 2.6% in gross fixed capital formation, juxtaposed with mild de-growth of 1.1% in government consumption expenditure and 2.4% in private consumption expenditure.

The sharp pickup in the capital spending of the Government of India has spurred the growth in gross fixed capital formation in Q3 FY2021."

RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI

"India's GDP data for Q3 tells the same story, which many other nations are witnessing. Economic growth has turned positive for several countries in the Oct-Dec quarter, partly attributed to the policy stimulus and partly to the optimism created by COVID-19 vaccination. However, India's GDP growth is lowly positive in Q3 as the stresses continue in mining, manufacturing and services sectors.

Indian growth during the pandemic is primarily supported by agriculture, construction activities and the government's capex spending. Consumption spending continues to stay weak both for the private and public sectors."

SIDDHARTHA SANYAL, CHIEF ECONOMIST AND HEAD OF RESEARCH, BANDHAN BANK, KOLKATA

"The 0.4% y/y growth in real GDP is broadly in line with Street expectations and is significantly stronger than the GDP prints witnessed during the previous two quarters. The current print will likely further boost the expectation of a 7%-8% y/y contraction in real GDP during FY21.

Furthermore, while expectations of GDP growth during FY22 remain strong, partly reflecting a markedly favourable base, one needs to note that the path for sequential growth can still be uneven and uncertain. Given the uncertainties around investments and exports, recovery prospects currently hinge critically on an uptick in private consumption.

Accordingly, one would expect support from public policy – both fiscal and monetary – will remain strong in the coming months."

KUMARESH RAMAKRISHNAN, CIO-FIXED INCOME, PGIM INDIA MUTUAL FUND, MUMBAI

"GDP print for Q3-FY 2021 finally came in positive, albeit marginally at +0.4%, after a negative 8% and 24.4% prints in the two previous quarters. Agriculture continued to show robustness at 3.9%, as it was the least affected by the pandemic.

Mining remained lacklustre, remaining in the negative zone. Manufacturing, electricity and construction all moved into the positive territory. Services remained weak again with most sub-segments other than banking de-growing.

While a return to positive growth is a sigh of relief, the internals clearly reflects the uneven and slow recovery. We expect a recovery to gather pace in Q4, as has been borne out by the quarterly earnings (in Q3) for most of the large and mid-corporates. Full-year GDP numbers, in our view, are tracking the -6% to -7.5% band."

SUMAN CHOWDHURY, CHIEF ANALYTICAL OFFICER, ACUITÉ RATINGS & RESEARCH, MUMBAI

"The Q3 GDP of 0.4% is in line with our forecasts and reinforces our expectations on the ongoing economic revival in India.

Private consumption has grown strongly on a QoQ basis by 18.5% in Q3 and is lower by only 2.3% compared to that in Q3FY20. What is encouraging is the YoY growth in gross fixed capital formation by 2.58%, which implies that the focus on enhanced capital expenditure by the government has started to yield dividends.

The trade, hospitality and transport segment GVA, which has been the most affected due to lack of mobility, has grown by 13.1% on a QoQ basis and has exceeded over 90% of that in the previous year. The momentum in the manufacturing sector is, however, a bit of concern. While manufacturing GVA has moved back to positive territory, it has partly benefited from a lower base in the previous year."

SAKSHI GUPTA, SENIOR ECONOMIST, HDFC BANK, GURUGRAM

"Q3 GDP was slightly lower than expectations, albeit showed that the economy did move into the green. Going ahead, we are likely to see a continuation of a K-shaped recovery with some sectors growing faster than others.

We expect growth to print at 1.5% in Q4 and -7.5% for the whole year FY21. We expect GDP for FY22 at 11.5%. We expect the economy to reach pre-pandemic output levels by the end of the calendar year 2021.

That said, there are some risks that need to be watched out including rising commodity prices, slow global recovery, and the pace of recovery in the informal sector and contact intensive services with the resurgence of domestic cases."

PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI

"Headline Dec-quarter GDP was a mixed bag with GVA growth +1% YoY coming close to our estimate, although some of the internals in the data were underwhelming. Having said that, the outcome is not entirely negative considering downward revisions for previous quarters.

These numbers will surely get revised further given this is an exceptional year. The GDP data confirms sharp activity uptick in Dec quarter and positive YoY growth one quarter ahead of earlier expectations.

High frequency indicators in January and February show that activity levels have stabilized post Dec quarter. However, we haven't overcome the health crisis as yet and hence policy will continue to lean towards supporting growth."

(Reporting by Anuron Kumar Mitra, Sachin Ravikumar, Chandini Monnappa, Philip George and Chris Thomas in Bengaluru; Editing by Aditya Soni)