New Delhi: The Indian economy’s pace of contraction slowed to 7.5 per cent in the July-September quarter from the record low seen in the preceding three-month period, as the economy started recovering from the blow of the Covid-19 pandemic and the consequent nationwide lockdown.
The data was released by the National Statistical Office Friday.
The Indian economy had contracted by a record 23.9 per cent in the April-June quarter as the two-month lockdown brought economic activity to a complete standstill.
Over the first half of the year, the Indian economy has contracted by 15.7 per cent.
With two successive quarters of negative growth, the Indian economy has entered ‘technical recession’.
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How sectors performed
NSO data showed that agriculture continued to register positive growth in this quarter as well, at 3.4 per cent.
Sectors like manufacturing and electricity bounced back, registering a growth of 0.6 per cent and 4.4 per cent respectively, while in sectors like construction and trade, hotels and transportation, the pace of contraction slowed to -8.6 per cent and -15.6 per cent respectively.
In Q1, manufacturing had contracted by 39.3 per cent, electricity by 7 per cent, construction by 50.3 per cent, and trade, hotels and transportation by 47 per cent.
The NSO data also showed that private final consumption expenditure declined in the quarter, though at a slower pace. Similarly, gross fixed capital formation — a key indicator of investment demand of the economy — also narrowed its decline in the second quarter.
Surprisingly, government final consumption expenditure declined in the quarter after registering a growth in the first quarter.
Experts’ responses
Reacting to the GDP numbers, Chief Economic Adviser Krishnamurthy Subramanian said he was “cautiously optimistic”. He, however, stressed that sustainability of the economic recovery depends critically on the spread of the pandemic, and warned that the winter months will be crucial.
Subramanian pointed out that until the pandemic goes away, sectors affected by the need to maintain social distancing will experience demand slump.
Dharmakirti Joshi, chief economist at ratings agency Crisil, said the better-than-expected Q2 GDP numbers can be attributed to pent-up demand; support from agriculture and select export sectors, cost savings for corporates and a ‘learning to live’ attitude. However, he pointed out that there are some signs of flattening of economic activity in the third quarter. This, along with the spread of Covid-19, will remain the “key monitorables”.
Aditi Nayar, principal economist at rating agency ICRA, pointed out that a loss of momentum in government spending led to a 22 per cent contraction in government final consumption expenditure in the quarter.
“As a result, this component turned into the worst performer on the expenditure-side in Q2 FY2021 from being the best performer with a 16.4 per cent expansion in Q1 FY2021,” she said.
Nayar added that the sharp easing in the pace of contraction in private final consumption expenditure was mainly on account of pent-up demand related to the lockdown quarter.
On Thursday, Reserve Bank of India Governor Shaktikanta Das had said the pace of economic recovery was faster than expected, but had warned of a renewed surge in Covid cases that could pose risks to the recovery. He had also flagged the need to keep a close watch on growth sustainability after the festive season.
The Reserve Bank of India estimates the Indian economy will contract by 9.5 per cent in the current financial year, but is hopeful that positive growth will return to the economy in the October-December quarter.
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