The Indian economy
remained on track to post the fastest growth among major economies this year as its GDP expanded by a better-than-expected 8.4 per cent in the July-September quarter to cross pre-pandemic levels.
The GDP growth in the second quarter of the current fiscal (2021-22) was slower than the 20.1 per cent expansion in the previous quarter -- which largely reflected a bounce back from last year's crash -- but was better than the contraction of 7.4 per cent in July-September 2020, official data released on Tuesday showed.
With economic activities returning back to normalcy post the second wave of pandemic earlier this year, this is the fourth consecutive quarter of positive growth after a two-quarter contraction witnessed last year.
The Q2 FY22 GDP print reflects a healthy recovery in private consumption expenditure driven by an unlock of the economy, the declining intensity of the pandemic and the significant progress on vaccination.
The growth of 8.7 per cent in government expenditure over the corresponding period of the previous year and low-interest rates boosted consumption.
"The GDP growth for Q2 came a tad lower than our estimates, led by disappointment in recovery of industrial sector, mainly manufacturing. Impressive momentum of vaccination, releasing of the pent up demand mainly in services sector, nascent uptick in private investment appetite and accelerated momentum of government spending in H2FY22 will remain supportive hereon, even as elevated inflation and weak rural sentiments are emerging as risks on the horizon," Garima Kapoor of Elara Capital told Reuters.
Agriculture chipped in on the back of a good monsoon, delivering back-to-back 4.5 per cent growth.
Manufacturing posted a 5.5 per cent increase, reflecting both a recovery in domestic demand and buoyant exports.
The effect of unlocking was reflected in the 7-8 per cent growth in construction, trade, hotels, transport and financial services.
What seemed to have moved the needle meaningfully was the strong 17.4 per cent growth in government services that include public administration and defence.
The absolute real GDP value at Rs 35.73 lakh crore has exceeded the pre-pandemic levels of Q2 FY20 by 0.33 per cent.
The GDP had shrunk to Rs 32.96 lakh crore in July-September last year during the nationwide lockdown.
GVA clocked 8.5 per cent year-on-year growth in July-September 2021 and the data shows broad-based expansion across sectors.
"The GDP growth for Q2 at 8.4% confirms that the economy gained traction in the second quarter. On the supply side, agriculture growth provided support, along with a pick-up in service sector growth at 10.2% as contact-intensive services improved along with financial and real estate sectors," Sakshi Gupta, senior economist, HDFC Bank told Reuters.
While private consumption is likely to pick up as the economy nears complete normalisation, a new coronavirus
variant has emerged as the top threat to global recovery.
Chief Economic Adviser (CEA) K V Subramanian said India is expected to log double-digit growth in the current financial year (April 2021 to March 2022), aided by rising demand and a robust banking sector.
"The overall growth for the first half has been 13.7 per cent so even a little more than 6 per cent growth in the subsequent quarters should be able to deliver double-digit growth for this year," he said. "We are projecting 6.5-7 per cent next year and thereafter 7 per cent plus over different scenarios."
India's GDP projection for 2021 compares with 8 per cent projected for China and 6 per cent for the US. China has logged a growth of 4.9 per cent in the July-September period of 2021.
He also said the seminal second-generation reforms would help the country grow by over 7 per cent during this decade.
With regard to fiscal deficit, he said the Budget estimate is likely to be met.
The government estimates a fiscal deficit of 6.8 per cent of the gross domestic product (GDP) for the current financial year ending on March 31, 2022.
Commenting on the GDP numbers, former finance minister and senior Congress leader P Chidambaram said it was not yet a V-shaped recovery and there are sectors of the economy that are still "crippled" and need help to recover.
"Let us extend a cautious welcome. It is NOT yet a 'V' shaped recovery. The fine print will bear that out," he tweeted. "In 2021-22, GDP growth in Q1 was 20.1 percent on a previous year's Q1 growth of -24.4 percent. In Q2, the growth is reported as 8.4 percent on a previous year's Q2 growth of -7.4 percent".
Separately, core sector data was released, which showed a revival in October at 7.5 per cent as compared to a moderation seen at 4.5 per cent in the previous month.
The sharp sequential growth of the core index at 7.3 per cent was driven by a massive recovery in coal production along with healthy sequential growth in output of cement, fertilisers and refinery products.
Except for electricity generation, which has seen a slight sequential contraction due to both seasonal factors and the earlier coal shortage, there has been a broad-based growth across all the core segments, raising hopes of an improving momentum in industrial activity.
The core sector output has exceeded the pre-pandemic levels with the weighted average index in April-October higher by 0.6 per cent as compared to the same period in 2019.
Six segments of the core sector have shown healthy positive growth over this seven-month period vis-a-vis that in FY20, except for crude oil and refined petroleum products.
GDP at Constant (2011-12) Prices in April-September 2021-22 (H1 2021-22) is estimated at Rs 68.11 lakh crore as against Rs 59.92 lakh crore during the corresponding period of the previous year, showing a growth of 13.7 per cent in H1 2021-22 as against a contraction of 15.9 per cent during the same period last year, the data showed.
According to the NSO data, gross value added (GVA) growth in the manufacturing sector accelerated to 5.5 per cent in the second quarter of 2021-22, compared to a contraction 1.5 per cent a year ago.
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