Q2 GDP data: Will the growth momentum continue?

With a better than expected sharp recovery in the July-September quarter, the growth prospects of the coming months are largely dependent on the chances of a second wave of Covid-19, sustaining the pent up demand and vaccine availability.

Hyderabad: Signalling a strong V-shape recovery, the Indian economy bounced back sharply from the worst quarter in over four decades.

As per the official data released Friday, the contraction in gross domestic product (GDP) eased from 23.9% in April-June quarter (Q1) to 7.5% in July-September quarter (Q2).

In fact, at 16.4%, India’s recovery is the sharpest among major economies in comparison to the economies of the UK (15.5%), France (14.6) and the US (7.4%).

Terming the better than expected recovery as a ‘pleasant surprise’, Rajiv Kumar, Niti Aayog Vice-Chairman, tweeted: “Speed of economic recovery springs a pleasant surprise. Manufacturing shows a positive growth which is the confirmation of a rebound of demand led recovery.”

What contributed to the strong recovery?

• The agriculture sector continues to be the bright spot during the current pandemic-triggered economic disruption. As per the data, agriculture, forestry and fishing sector grew 3.4% during Q2 – the same rate at which it grew in Q1.
• A sharp rebound was seen in the manufacturing sector, which managed to post a marginal growth of 0.6% in Q2 compared with negative growth of 39.3% in Q1.
• The real estate sector, which was the worst hit on the back of lockdowns and labour shortage, managed to pull-up itself from the dismal rate of -50.3% in Q1 to -8.6% in Q2.
• Non-essential services like hotel, transportation, communication, etc recovered sharply from 47% contraction in Q1 to -15.6% in Q2 on the back of a series of ‘unlock’ measures that started in last June.

Will the recovery continue?

In its latest monthly bulletin, the RBI has said that the economy may register positive growth in the October-to-December quarter after six months of contraction if the economic upturn sustains till the end of the year.

Talking to reporters after the release of GDP data, Chief Economic Adviser K V Subramanian said he is ‘cautiously optimistic’ on the recovery path.

"I would say that the given what we have seen in Q1 and Q2 and with the optimism that is being seen in the estimates, I do see upside potential in that estimate given the good recovery that is happening,” Subramanian said.

Economists believe that while the strong sales in automobile, FMCG and retails sectors during the Dussehra-Diwali festive season would uphold the recovery in Oct-December quarter (Q3), ability of the businesses to sustain the pent up demand, fears of a second wave of Covid-19 and the timing of vaccine deployment would largely decide the growth momentum in next January-March quarter (Q4).