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India's GDP to contract 1-2% in Q3 FY21, growth to turn positive in Q4: Motilal Oswal

Chitranjan Kumar     December 3, 2020

India's economic activity is improving and the country's GDP growth will turn positive in the fourth quarter of the current financial year, according to a latest research report. Motilal Oswal expects India's gross domestic product (GDP) to contract 1-2 per cent in the third quarter ended December 31, 2020, before posting a positive growth in March quarter of the current fiscal.

In its 'Ecoscope' report released on Thursday, Motilal said the second wave of the COVID-19 pandemic, however, remains a valid risk.  

Preliminary estimates reveal that Economic Activity Index (EAI) for India's real Gross Value Added (GVA), also called EAI-GVA, grew 4.8 per cent year-on-year (YoY) in October 2020, marking the second consecutive growth and better than the 2.2 per cent YoY in Sep'20, the report said. This is the first month in a year when non-farm activities (both industrial and services) grew faster than the farm sector, it added.

"Overall, EAI-GVA continues to show an improvement in economic activity, while demand measures (EAI-GDP) continue to lag. Based on a few indicators available for Nov'20 - power generation, manufacturing PMI, e-way registrations, etc., growth seems to have cooled off last month. If so, it suggests that the growth peaked out in Oct'20 (as per our expectations) and is likely to moderate in coming months. Real GDP could contract again in 3QFY21 before posting a growth in 4QFY21," said Motilal Oswal.

India's second quarter GDP growth has turned out to be better than anticipated, falling by just 7.5 per cent against the massive contraction of 23.9 per cent in the first quarter. A pick-up in manufacturing helped GDP clock a lower contraction. The better than expected contraction was primarily due to significant rebound in sectors like manufacturing, construction and 'trade, hotels, transport, communication & services related to broadcasting'.

Based on the current trends, many research firms and economists expect India's GDP growth to turn positive by third or fourth quarter of the current fiscal.  However, the whole year's growth will be in negative zone.

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