Cheers! GDP Back in Positive Territory

Good news came on this year’s worst day of the market. In the December quarter, the economy has regained its lost steam caused by the pandemic. It has registered a flat growth of 0.4% after two consecutive quarters of deep contraction. According to the data released by the National Statistical Office (NSO) in the financial year 2020-21, the GDP would contract by 8%, the contraction was previously seen at 7.7%. The finance ministry said the growth in Q3 reflects the further strengthening of the V-shaped recovery that began in Q2. The resurgence of the gross fixed capital formation was also triggered by strong capex by the Centre. NSO has already revised GDP growth rates for Q1 and Q2, both released after the onset of the pandemic, to -24.4% and -7.3%, respectively, from -23.9% and -7.5% estimated earlier.

The recovery is still not broad-based and at the broader level, the economic activities are lingering below the Pre-Covid level. The data shows manufacturing PMI hit a three-month high in January, while services PMI rose to 52.8 last month from 52.3 in December. Remember above the 50-level mark separates growth from contraction. Merchandise exports rose 6.2% in January from a year before, the highest in 22 months. As demand is still muted government expenditure has to be stepped to achieve the estimated growth rate in Q4. In recent months, the Centre has stepped up spending still if the government were to meet the revised budgetary expenditure estimate (RE) for FY21, it would have to more than double the spend in Q4 from the year-ago level. After all investment and not consumption will be India’s growth driver. The finance ministry said high-frequency indicators, including power consumption, inter-and-intra-state mobility, manufacturing capacity utilisation, business expectations, and consumer confidence, in January point at a sustained and strengthening economic recovery.