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Positive GDP growth in Q3 reflection of strengthening V-shaped recovery: Govt

The initial policy choice of "lives over livelihoods" succeeded by "lives as well as livelihoods" is now bearing positive results, the government said.

twitter-logoBusinessToday.In | February 26, 2021 | Updated 22:29 IST
Positive GDP growth in Q3 reflection of strengthening V-shaped recovery: Govt
As per government data, India's GDP grew 0.4 per cent during the third quarter ended December 31, 2020.

The real GDP growth of 0.4 per cent in October-December quarter is a reflection of further strengthening of the V-shaped recovery that began in July-September quarter of 2020-21, the Finance Ministry said on Friday.

As per government data, India's GDP grew 0.4 per cent during the third quarter ended December 31, 2020.  It expects GDP to contract by 8 per cent in financial year 2020-21.

"Real GDP growth of 0.4 per cent in Q3 of 2020-21 has returned the economy to the pre-pandemic times of positive growth rates. It is also a reflection of a further strengthening of V-shaped recovery that began in Q2 of 2020-21, after a large GDP contraction in Q1 followed one of the most stringent lockdowns imposed by government relative to other countries," the Finance Ministry said in a statement.

Also read: India steps out of recession - GDP grows 0.4% in Dec quarter

The government on Friday also revised the GDP contraction in first quarter to 24.4 per cent from 23.9 per cent earlier, while the contraction for second quarter was revised to 7.3 per cent as opposed to 7.5 per cent estimated earlier.

The initial policy choice of "lives over livelihoods" succeeded by "lives as well as livelihoods" is now bearing positive results converging with the foresight the government had about an imminent V-shaped recovery when it entered the war with the pandemic on health and economic fronts, the release said.

"The sharp V- shaped recovery has been driven by rebounds in both Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF) as a combination of astute handling of the lockdown and a calibrated fiscal stimulus has allowed strong economic fundamentals to trigger quick resumption of high activity levels in the economy," it added.

The overall uptick in the economy and resurgence in GFCF was also trigerred by Centre's capital expenditure (capex) that grew 129 per cent year-on-year in October, 249 per cent in November and 62 per cent in December 2020.

Also read: COVID impact worse than estimated; Q1 GDP revised to -24.4% from -23.9%

Fiscal multipliers associated with capex are at least 3-4 times larger than Government Final Consumption Expenditure (GFCE) as capex induces much higher consumption spending than normal income transfers. However, GFCE has played a critical role since April 2020 as apart from supporting lives and livelihoods it provided the initial stimulus to the economy, the ministry said.

The significant recovery in manufacturing and construction augurs well for the support these sectors are expected to provide to growth in 2021-22. Real gross value added (GVA) in manufacturing improved from a contraction of 35.9 per cent in Q1 to a positive growth of 1.6 per cent in Q3, while in construction, the recovery has been from a contraction of 49.4 per cent in Q1 to a positive growth of 6.2 per cent in Q3.

"These sectors are vital to the economy to achieve a growth of 11 per cent or more in 2021-22 as they will be impacted most by the counter cyclical fiscal policy that budgets fiscal deficit at 6.8 per cent of GDP."

The much lower contraction of 1 per cent GVA in services sector is welcome as activity levels in contact-based services appears to have risen with the decline in the pandemic curve. A continuous decline in the pandemic curve and a step-up in vaccination drive, as recently announced, will support further revival of contact-based services.

"Given that services constitute more than 50 per cent of total GVA in the country, it becomes the most important source for increasing consumption in the economy. Real GVA in agriculture continues to provide vital support to the economy having grown from 3.3 per cent in Q1 to 3.9 per cent in Q3," the ministry said.

Also read: Govt sees India's GDP contracting 8% in FY21

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