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DAILY NEWS ANALYSIS

  • 03 March, 2021

  • 5 Min Read

Economic revival from the economic recession

Economic revival from the economic recession

Introduction

  • After two quarters of a sharp contraction, India’s economy is estimated to have rebounded out of a ‘technical recession’ to record feeble growth in the October-December 2020 period, with GDP rising by 0.4% and GVA by 1%.

Reboot in production lines

The ‘unlocking phase’ that was largely complete by late September, brought back a semblance of normalcy, with pent-up and festival demand spurring spending, and helping reboot production lines.

  • Agriculture sector: Agriculture remained the resilient bulwark in the third quarter as well, with farm GVA rising by 3.9% after being the sole sector to clock growth in the preceding two quarters.
  • Manufacturing and construction sector: Manufacturing and construction resurfaced from a collapse to expand 1.2% and 6%, respectively.
    • Both these sectors had been under stress even before the pandemic, posting contractions starting from the second and third quarters of 2019-20.
  • Public Spending: Despite the Centre’s push on government spending, public administration, defence and other services contracted 1.5% last quarter.
    • However, investment demand is estimated to have rebounded, with fixed capital formation posting positive momentum after several quarters, driven perhaps by public spending.
  • Service Sector: Most worryingly, retail, trade, hotels, transport and communication contracted by 7.7%.

Macroeconomic data

  • Wider contraction of GDP in 2021-22: Despite the Q3 uptick, the second advance estimates of national income for the year project an 8% contraction in the GDP, wider than the – 7.7% estimated in January.
    • This may partly be due to the NSO revising the first quarter’s GDP shrinkage to 24.4%, from the 23.9% calculated earlier.
  • Real GDP growth: Like the growth rate for 2019-20 was revised from 4.2% to 4% in January, the real GDP growth for the third quarter of the last fiscal has been scaled down to 3.3%, from 4.1%.

Conclusion

  • Growth numbers alone may still not be capturing the tumult faced by swathes of informal and micro-enterprises, nor do they reflect a recovery in the job market.
  • The continuing stress in employment- and contact-intensive services sectors is a worry, and the government must consider support measures.

Source: TH


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