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V-shaped recovery is evident, global uncertainty not mirrored in India, finance ministry says

Finance ministry’s monthly outlook report for November says another wave of Covid is a downside risk, but there’s growing optimism thanks to vaccines and other factors.

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New Delhi: It is evident that the Indian economy is seeing a V-shaped recovery, the Union finance ministry has said in its monthly economic outlook report for November, citing the second quarter GDP growth numbers.

“The year-on-year GDP contraction of 7.5 per cent in Q2 of 2020-21 underlies a quarter-on-quarter surge in GDP growth of 23 per cent. This V-shaped recovery, evident at the half-way stage of 2020-21, reflects the resilience and robustness of the Indian economy,” the report said.

The finance ministry added that the fundamentals of the economy remain strong as gradual scaling back of lockdowns, along with the support of the Atmanirbhar Bharat Mission, has placed the economy firmly on the path to recovery.

The report added that the “resilient V-shaped recovery” in the second quarter of 2020-21 shows the resumption of economic activity has been gathering pace.

It also flagged that there is a downside risk of the spread of a second wave of Covid-19, but said there is a growing optimism that the Indian economy will not see the sharp contraction of 23.9 per cent seen in the April-June quarter.

“…There is a growing cautious optimism that the steep plunges of April-June quarter of 2020 may not resurface with significant progress in vaccines and contact intensive sectors increasingly adapting to a virtual normal,” the ministry’s report said.

“The prospects of a vaccine are encouraging but we need to remain on guard till it is approved and permeates to a large section of the population,” it added.

Also read: Economic recovery stronger than expected, but surge in Covid cases key risk — RBI governor

Growth drivers

The report said growth drivers for the Indian economy have been agriculture, followed by construction and manufacturing, and added that “services dependent on human mobility and contact will bide their time to reach pre-pandemic levels before the fear of contagion declines to manageable levels, addressed among others, by the emergence of a vaccine”.

It also pointed out that the global economic uncertainty due to a fresh Covid wave is not reflected in India.

“Moving deeper into Q3, there is a cautious optimism that global economic uncertainty does not mirror itself in India notwithstanding moderation of a few high frequency indicators late in the month of November,” it said.

The Indian economy was forecast to contract by 10-12 per cent in 2020-21, but many financial institutions and rating agencies have raised India’s growth forecasts after an improvement in many economy indicators. Most now expect the Indian economy to contract by single digits.

Citing various high frequency indicators, the ministry’s monthly economic outlook said domestic impetus to growth is visible.

Port cargo traffic is nearing last year’s levels, while growth in consumption of petroleum products as well as the PMI services index turned positive in October after months of contraction.

In addition, sales of passenger vehicles, two- and three-wheelers and tractors have registered a positive growth; power consumption and e-way bills are growing; and foreign inflows into India have surged, the report said to buttress its optimism.

Also read: IMF, G-20 warn recovery may be derailed, risks still very high


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