Q3 GDP to register marginal growth after record falls in first half of FY21, economists say


Economists predict that GDP growth will see marginal growth in the third quarter (October-December) of 2020-21 after contracting in the first half of the year due to the Covid-19 pandemic and national lockdowns, data for which is set to be released by the National Statistical Organisation (NSO) on Friday.

India’s quarterly GDP growth has slid for two consecutive quarters by record margins due to the Covid-19 pandemic. GDP fell by 7.5 per cent during the July-September quarter of the current fiscal, against the massive contraction of 23.9 per cent in the first quarter amid COVID-19 pandemic-led nationwide lockdown.

All eyes will now be on the crucial data for the third quarter of 2019-20 when the industrial cycle was fully on the mend as manufacturing came back to life after the nationwide lockdowns and subsequent labour, materials shortages.

If it picks up in Q3, as most economists predict it to, it will be a sign of steady recovery. In a recent report, DBS Bank said it expects the latest quarterly growth to be at 1.3 per cent while the rating agency ICRA estimated a rise of 0.7 per cent. State Bank of India Group Chief Economic Advisor Soumya Kanti Ghosh has predicted the GDP growth to be around 0.3 per cent in Q3, based on the bank’s SBI Nowcasting Model’.

“Encouragingly, almost all the non-agricultural lead indicators that we track recorded a continued, albeit uneven, improvement in volume terms in Q3 FY2021. This pickup benefited from the continued unlocking of the economy, uptick in consumption during the festive season, as well as higher central government spending. Moreover, most of the tracked indicators rebounded to growth on a YoY basis in that quarter, although this was on the low base of Q3 FY2020,” Aditi Nayar, Principal Economist at ICRA, said.

According to ICRA, the outliers in terms of sectors that continued to contract in Q3 included aviation, reiterating that touch-based portion of the economy will take longer to recover. The same is expected for large parts of the service industry such as restaurants and tourism.

However, the small rate of pickup currently expected may put a dampener on the speed of recovery going forward. Experts say that consumer demand led manufacturing growth would have to be carefully watched for this. The Index of Industrial Production (IIP) has shown uneven growth over the quarter as it rose by only 1 per cent in December after a 2 per cent fall in November, which could continue to drag down overall growth. “The December data once again reinforces the view that the uptick in September and October had been due to a combination of festive and pent up demand. The recovery is still fragile and the ongoing recovery needs sustained policy support,” said Devendra Pant, Chief Economist at India Ratings.

The government will also release its second advance estimates of GDP for 2020-21 on Friday. According to the existing NSO data, almost all sectors, barring agriculture, are set to see a contraction in FY21. Analysts will also be keenly watching the NSO’s nominal GDP growth rate estimates that would offer cues on how the economy has fared after the cycles of multiple national and regional lockdowns. Nominal GDP is calculated at current prices. Real GDP is GDP adjusted for inflation and is usually calculated by subtracting the growth in actual or nominal GDP by the inflation rate or ‘price deflators’. Earlier this month, Finance Minister Nirmala Sitharaman said nominal GDP growth for 2020-21 is estimated at 10 per cent.