India’s GDP grows 0.4% in Q3, returns to growth after two consecutive quarters of decline

The recent reforms, along with the Union Budget have been hailed as revolutionary that could bring India back to double-digit growth.

The increased GST collections of more than Rs 1 lakh crore and the record collection of Rs 1.2 lakh crore in January also indicated recovery.
The increased GST collections of more than Rs 1 lakh crore and the record collection of Rs 1.2 lakh crore in January also indicated recovery.

India’s economy returned to the growth trajectory, growing 0.4 per cent in the fiscal third quarter, after having witnessed contraction for two consecutive quarters. The growth was below the median projections made by economists polled by Reuters. The GDP growth reported today along with the recent high-frequency indicators, hint that India is treading smoothly on the path of recovery. Further, the recent reforms, along with the Union Budget have been hailed as revolutionary that could bring India back to double-digit growth.

Sectors in focus

“GDP at Constant (2011-12) Prices in Q3 of 2020-21 is estimated at Rs 36.22 lakh crore, as against Rs  36.08 lakh crore in Q3 of 2019-20, showing a growth of 0.4 percent,” the official release said. The manufacturing sector grew by 1.6 per cent in the October-December quarter, while construction was up 6.2 per cent. Trade, hotels, transport, communication services contracted the most at 7.7%. The mining sector contracted 5.9 per cent and agriculture was up 3.9 per cent. India’s economy entered a technical recession earlier this fiscal. The positive growth in India’s economy comes after two straight declines, including a massive 23.9% fall in the first quarter.

Earlier, ahead of the GDP numbers, the eight core-industries inched higher by 0.1% higher from a year-ago period. Steel production was higher from the previous year, along with electricity generation, and fertilizer production. Cement, petroleum refinery, coal, and crude oil, and natural gas production was down.

India’s economy back in positive territory

With the economy back in the positive territory, recovering from the coronavirus pandemic, India has already undertaken a slew of reforms to come back stronger. To add to that the recently announced Union Budget has also been dubbed as reformist by many. 

High-frequency activity indicators suggest recovery has been strong for India. In January, GST collection came in at Rs 1.2 lakh crore and the manufacturing Purchasing Managers’ Index (PMI) rose from 56.4 in December to 57.7. This was the strongest improvement seen by the sector in the last three months. Barclays highlighted that rural India’s demand remains robust while power generation growth has been steady. Construction has continued to impress along with GST E-waybill generation.

What’s ahead for India?

Just days ahead of the GDP numbers, global rating agency Moody’s said that India’s economy will contract 7.1 per cent in the current fiscal year, only to grow at 13.7 per cent in the next financial year. Barclay’s forecasts the GDP to contract -6.5 per cent in fiscal year 2021 but sees it growing at 8.5 per cent with some upside risks.

The Reserve Bank of India (RBI), earlier this month projected the GDP growth at 10.5% in the financial year beginning April 1, 2022.

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