India Q2 GDP: Are signs of revival real and what do latest numbers mean for FY21?

The Q2 GDP numbers released today indicate that the economy is looking to wriggle its way out of a very deep hole it had found itself in following the coronavirus outbreak.

The Indian economy, which witnessed a contraction of 23.9 percent in the June quarter, shrank 7.5 percent in the September quarter, according to official data released by the National Statistical Office today.

The agriculture sector, which stood out in the first quarter, recorded a growth of 3.4 percent like in the previous quarter while the manufacturing sector, which contracted 39.3 percent in the last quarter, rebounded with a 0.6 percent growth.

In October, 10 of the 17 high-frequency indicators tracked by Icra showed a pick-up, including GST e-way bills where growth accelerated to 21.4 per cent as compared to the year-ago period, as against 9.4 per cent in the preceding September.

Higher GST collections also imply that indeed people are buying more than before.

Passenger vehicle sales also increased by 14.19 percent to 3,10,294 units in October this year against 2,71,737 units in the same month last year.

According to rating agency ICRA, the spikes in production seen in various sectors in the month of October are an exaggeration of the true recovery on the ground, as those have been driven by a large component of pent-up demand that may not sustain after the festive period is over.

KV Subramanian, Chief Economic Adviser, said the Q2 numbers are encouraging while Kshatrapati Shivaji, Chief Statistician, said agriculture and allied services have done well.

According to Joseph Thomas, Head of Research - Emkay Wealth Management, although there is nothing extraordinary about the numbers, there is a clear implied reassurance of a gradual recovery ahead

"The pandemic and lockdown-induced economic contraction seems to be gradually slowing down with the Q2 GDP contraction at - 7.50 percent. This looks relatively better compared to a contraction of - 8 percent to - 9 percent which was widely expected. Manufacturing is at just +0.60 percent as against an expected contraction of - 9 percent. This has helped the aggregate number to be better than expected. While agriculture is positive at 3.4 percent, construction and mining remain in negative territory. H2 overall is expected to be positive, but mildly positive. So, the economic contraction is gradually slowing down," he said.

Earlier this month, the Reserve Bank of India had forecast that the Indian economy is likely to contract by 8.6 percent, entering into a 'technical recession'.

The State Bank of India's economic research arm has pointed out that the economy has "suffered and scarring remains" but added that various economic indicators point to continuous improvement.

A recovery post-Covid will depend on how fast the vaccine is rolled out and consumer confidence is restored.

High-frequency indicators across sectors document the economic recovery underway and economists are expecting the economy to register positive growth by the March quarter.

The real test will be in the next quarter when the festive season impact goes.

So, the worst may be behind us but the economy is not out of the woods yet.

Original Source: https://www.moneycontrol.com/news/business/economy/india-q2-gdp-are-signs-of-revival-real-and-what-do-latest-numbers-mean-for-fy21-6164891.html