The Indian economy likely contracted 10.2% in the July-September quarter
from the year earlier according to the median estimate of 10 economists and
experts polled by ET, which would be a substantial improvement from the
23.9% decline in the June quarter due to the Covid-led lockdown.
It''s also an advance from the 12% median estimate in poll ET conducted in
September as the economy picked up pace toward the end of the second
quarter. At a contraction of 10.2% from the year earlier, the implied
sequential growth from the first quarter would be 57%.
The latest estimates of the contraction ranged from 8% to 13.5% as
agriculture and manufacturing propped up growth, aided by favourable
government policies, while the services sector lagged behind on account of
continued restrictions and consumer caution, independent economists said.
The government is expected to announce second-quarter GDP figures at the
end of this month.
"The pace of contraction in GDP is likely to have more than halved in Q2
FY2021 as compared to Q1 FY2021," said ICRA principal economist Aditi
Nayar, adding that growth during the quarter was led by electricity within
the industrial sector followed by mining and manufacturing. ICRA has
estimated a second-quarter contraction of 9-10%. Industrial production
expanded 0.2% in September, reversing six months of contraction with
mining and electricity growing 1.4% and 4.9%, respectively.
The Purchasing Managers'' Index (PMI) rose to the highest in eight-and-ahalf years in September and goods and services tax (GST) collections rose
to a post-pandemic high of Rs 95,480 crore.
Tackling supply issues helped
September also saw record e-way bill generation at 57.4 million.
While demand remained constrained, the removal of supply side
restrictions drove growth, according to Rahul Bajoria, chief India economist
at Barclays, estimating an 8% contraction in the second quarter.
"Since August, India''s recovery is happening largely because the supply
constraints that were very debilitating were removed and activity suddenly
picked up," Bajoria said. While October saw improvements, pent-up
demand combined with a festive season upsurge drove growth toward the
end of the second quarter, said Pronab Sen, former chief statistician of
India. He projected a 5-8% contraction in the September quarter.
"The level of economic activities in July and August were not very different
from June," said DK Pant, chief economist at India Ratings and Research,
pegging the September quarter contraction at 11.9%. "It was only in
September that economic activities have shown significant improvement."
The uptick in the July-September period and evidence of further
acceleration in October and November triggered upgrades in FY21 GDP
estimates.
Capacity utilisation low
Goldman Sachs said Tuesday it expects India''s economy to shrink 10.3% in
FY21, compared with a 14.8% contraction it projected in September. While
agriculture fared comparatively well, floods in many parts of the country
disrupted the farm sector. The shortage of migrant labour resulted in patchy
recovery in the construction sector, according to M Govida Rao, chief
economic advisor at Brickwork Ratings.
"Although the relaxation of the lockdown resulted in an improvement in
economic activity to some extent, the capacity utilisation continued to be
low," Rao said, estimating second-quarter shrinkage at 13.5%.
"The important thing is for six consecutive months we are seeing negative
growth," said Madan Sabnavis, chief economist at CARE Ratings. "But this
is very much on expected lines given that it was a manmade lockdown." The
gradual pace of recovery is due to the calibrated lifting of restrictions, he
said. The agency expects a 9.9% contraction in the second quarter.
RBI played key role
HDFC Bank estimated the second-quarter contraction at 11% while State
Bank of India Research pegged it at 10-10.5% with a downward bias.
While most economists agreed that the Reserve Bank of India (RBI) played
its part in terms of providing support through monetary policy during the quarter, they felt fiscal policy was lacking. The government last week
announced a Rs 2.65 lakh crore stimulus package - the third in the series -
to provide a boost to the Covid-hit economy.
Although a major stimulus was not called for in the second quarter, Sen said
the government should have made its intentions clear and announced the
steps it was going to take to provide some assurance to various sectors of the
economy.
Source: The Economic Times, India Thursday, 19 November 2020