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Govt cautiously optimistic after Q2 GDP numbers exceed expectations: CEA

CEA Subramanian said that he expects the full-year GDP growth numbers to be better than the estimated contraction of 8-9 per cent, advising people to people to practise caution till the pandemic subsides

twitter-logoDipak Mondal | November 27, 2020 | Updated 19:41 IST
Govt cautiously optimistic after Q2 GDP numbers exceed expectations: CEA

Chief Economic Advisor K Subramanian said that he remains cautiously optimistic about the revival of the economy as Q2 GDP numbers show a lower than expected contraction of 7.5 per cent.

He said that the decline in Q1 and Q2 GDP numbers was primarily due to the COVID pandemic and the uncertainty around COVID-19 remains. He said that the sustainability of the economic recovery depends critically on the spread of the pandemic.

"While we have crossed the peak of first wave in September, winter months must warrant caution," said the CEA, who was addressing the media after the government released the second quarter GDP numbers.

The CEA cited the example of Spanish flu, the second wave of which, he said, was more devastating than the first.

ALSO READ: Recession hits India - GDP contracts 7.5% in Q2

Therefore, he advised people to follow the pandemic protocols religiously till large sections of the population are vaccinated.

CEA Subramanian said that he expects the full-year GDP growth numbers to be better than the estimated contraction of 8-9 per cent.

He pointed out that the fact that rise of 0.6 per cent in manufacturing sector, 4.4 per cent growth in utilities, and continued growth in agriculture above 3 per cent, are positive signs for the economy.

However, he said that sectors like trade, hotels and some other parts of service sectors, which contracted 15.6 per cent in the second quarter, will continue to experience demand slump till the pandemic persists.

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He also said that the uptick in private consumption and gross capital formation are positive signs despite a slight decline in government consumption. "Almost 90 per cent of GDP comes from private consumption and private investment, and therefore, I would read that as an encouraging sign," said the CEA.

Subramanian also said that food inflation is expected to come down in the third quarter, as was evident from softening WPI food inflation in October. "Our analysis of the inflation suggests that it is primarily because of the supply side constraints on food items, especially vegetables which are perishable items," he said.

The real GDP in the second quarter (July-September) of financial year 2020-21 is estimated at Rs 33.14 lakh crore, as against Rs 35.84 lakh crore in Q2 of 2019-20, showing a contraction of 7.5 per cent as compared to 4.4 per cent growth in Q2 FY20.

The nominal GDP (at current prices) in July-September 2020 is estimated at Rs 47.22 lakh crore, as against Rs 49.21 lakh crore in Q2 2019-20, showing a contraction of 4 per cent compared to 5.9 per cent growth during the same period last year.

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