Indian economy exits technical recession as GDP grows at 0.4% in Oct-Dec quarter

New Delhi: India's economy returned to growth in the December quarter, ending a recession induced by two successive quarters of economic contraction, and the recovery, which the government termed as 'V' shaped, is expected to gather pace.

The Gross Domestic Product (GDP) grew 0.4 percent in the October-December 2020 period compared with the same period a year back, data released by the National Statistics Office on Friday showed.

This growth compares with revised contractions of 24.4 percent in April-June 2020 and 7.3 percent in July-September. GDP had expanded by 3.3 percent in October-December 2019.

While India has become one of the few major economies to post growth in the last quarter of 2020, the annual GDP estimate for the fiscal year ending 31 March has been revised to an 8 percent contraction, deeper than an earlier estimate of (-) 7.7 percent.

China's economy grew by 6.5 percent in October-December 2020, faster than the 4.9 percent growth in July-September 2020.

Commenting on the growth numbers, the finance ministry in a statement said real GDP growth has "returned the economy to the pre-pandemic times of positive growth rates."

"It is also a reflection of a further strengthening of V-shaped recovery that began in Q2 of 2020-21 after a large GDP contraction in Q1 followed one of the most stringent lockdowns imposed by government relative to other countries," it said.

Stating that the V-shaped recovery has been driven by rebounds in private consumption and investments, the ministry said the initial policy choice of "lives over livelihoods" succeeded by "lives as well as livelihoods" is now bearing positive results.

Agriculture, a bright spot through the pandemic, grew 3.9 percent in October-December while manufacturing expanded 1.6 percent as the economy reopened after a harsh lockdown.

Financial and real estate services grew 6.6 percent but trade, hotels, transport, and communication fell 7.7 percent. Construction rose 6.2 percent.

The positive growth ends the recession that the Indian economy had witnessed lately.

Arun Singh, global chief economist, Dun & Bradstreet, said the release of pent-up demand fuelled by the festive period might have added to the marginal positive growth in GDP in Q3 FY21.

"Most surprising is the contribution of government spending to the GDP during the third quarter which is a seven-quarter low, even as the government's stimulus package 3.0 was announced before the festive month," he said, adding that private consumption demand, although improved, remains weak.

However, there are risks to growth that arise from the fact that industrial production is yet to stabilise, core inflation remains stubbornly high, oil prices are rearing its head again and unemployment remains elevated.

Add to this is the risk of spurt in cases in some states and the likely disruptions to businesses and supply chain from the restrictions imposed to curb the possibility of a second wave.

"The measures taken by the government to contain the spread of the pandemic have had an impact on the economic activities as well as on the data collection mechanisms.

"The data challenges in the case of other underlying macro-economic indicators like IIP (industrial production) and CPI (retail inflation), used in the estimation of National Accounts aggregates and specific measures, if any, taken by the government in the following months with a view to addressing the pandemic led economic situation will have implications on the subsequent revision of these estimates," the NSO said.

Estimates are, therefore, likely to undergo sharp revisions for the aforesaid causes in due course, as per the release calendar. Users should take this into consideration when interpreting the figures, it added.

"With a growth re-emerging in both GDP and GVA in Q3 FY2021, the pandemic-induced technical recession in India has ended, in line with our expectations," ICRA principal economist Aditi Nayar said.

Recouping of GDP to the positive territory is a promising sign as it portends the end of the pandemic-induced recessionary phase seen in the first half of the year, CII director general Chandrajit Banerjee said.

The growth stimuli available from the Union Budget and the additional measures, including the PLI (Production Linked Incentives), will lead to a sturdy growth path over the recovery horizon, he added.

"The real push will come in the Q4 (January-March) 2021 because lockdowns on many sectors, particularly hospitality and travel eased substantially during this quarter.

"It is hoped that it remains that way, given the uptick in cases in some pockets and in some states. Important to note that the states coming under uptick constitute a large part of industrial activity, and that is important for Q4 and the next financial year," Deloitte India partner Sanjay Kumar said.