GDP contraction to improve to ‘higher single digits’ in July-September, says expert

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November 24, 2020 7:43 PM

The GDP contracted by 23.9 per cent in the June quarter due to strong lockdown measures and leading to expectations of the GDP growth being a negative 14 per cent for the full fiscal.

GDP, indian economyThe pulldown impact of net exports, which benefited from a Covid-induced demand-compression in the economy in the first half of this fiscal, exacerbated again in Q3, as imports rebounded.

The GDP contraction will improve to “higher single digits” in the September quarter, and the economy will be back to positive growth by the March quarter, Nilesh Shah, a part-time member of the Economic Advisory Council to the Prime Minister, said on Tuesday.

Shah, a mutual fund industry veteran, said markets are bound to head north in the long term and foreign portfolio investors – who have already poured over Rs 45,000 crore into Indian markets in November, will pump more money in single month than in two previous years.

The GDP contracted by 23.9 per cent in the June quarter due to strong lockdown measures and leading to expectations of the GDP growth being a negative 14 per cent for the full fiscal.

However, resumption of economic activities lately has resulted in some revisions. The RBI expects India’s GDP to contract by 9.5 per cent.

“June quarter when we reported a 23.9 per cent drop, it was one of the worst ever. In the September quarter, the expectation is negative GDP growth but hopefully higher single-digit rather than double digit, December quarter (will have) lower single digit drop in GDP growth and March 21 (quarter) we should expect positive GDP growth,” Shah said.

Speaking at an event organised by BBF India, Shah said a lot depends on the second wave of infections, medical solutions like preventive vaccines or drugs which can cure the infections.

From a longer term perspective, India needs to “copy” the Chinese model and be a manufacturer for the world to help its economy, he said.

Shah said both India and China were at the same level in 1980, but China became the manufacturer of the world leading to massive gains while India remained the backoffice of the world.

“If we become part of the global supply chain, that will change india’s growth orbit forever,” he said, citing the case of South Korean electronics major Samsung.

He said while Samsung also manufactures mobile phones and other items in India, it uses Vietnam more for supplying to the global markets. Resultantly, its turnover in India is only USD 12 billion, while in Vietnam, whose economy is a tenth of India’s, the same is over USD 60 billion.

India needs to ensure that talent like Microsoft’s Satya Nadella and Google’s Sundar Pichai does not venture out and create an enabling environment which will make it possible to build admired businesses, he said.

At present, the condition of an entrepreneur is like that of Abhimanyu in the mythological book Mahabharat, who is fighting the market forces in the form of Kauravas and internal difficulties through the regulatory agencies’ watch, he said.

Shah, who heads Kotak Mutual Fund, said the FPI flows have been surging through the month and wondered if PM Narendra Modi’s meeting with the investors on November 5 had anything to do with it.

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