GDP Highlights Q3 FY21 – Are We On The Road To Recovery

As per the GDP data released by the National Statistical Office (NSO), the Indian economy after being in the red zone for the first two quarters returned to the green zone in Q3 of FY21 by posting a nominal growth of 0.4%. However, the NSO has indicated that the growth may once again slip into the red zone with an estimated contraction of 1.1% in Q4.

It may be recalled that the economy had contracted by 24.4% and 7.3% in Q1 and Q2 respectively.

The Ministry of Finance in a release stated that “This is a reflection of further strengthening of V-shaped recovery that began in Q2 of 2020-21 especially after a large contraction in Q1 due to the pandemic-induced lockdown.”

The NSO also forecast that GDP is expected to contract by 8% during FY 21 against the earlier estimate of 7.7%.

Spending Trend

The growth of India’s economy is driven mainly by Investments, Consumer spending, and Government spending. The YOY % change in growth under these heads is shown in Table 1 below:

Table 1

(Note: All figures about Q4 are estimates)

The steep fall in government spending in Q2 with its spillover effect in Q3 impacted the performance of the corporate and other sectors which, along with job losses, influenced consumer spending as well. The pent-up demand and the festive season softened the blow to some extent.  

However, increased capex spending resulted in higher fixed asset creation. This could have a positive effect on the economy in the long run.

The estimated contraction in Q4 depends to a large extent on the government spending which is targeted to rise by 29.2%. Keeping in mind the fiscal constraints facing the government it remains to be seen whether the targeted increase would be achieved.

Sector-wise Performance

The YOY % change in the growth of the four core sectors is shown in Table 2 below:

Table 2

(Note: All figures about Q4 are estimates)

The agriculture sector maintained its steady growth while manufacturing moved into positive territory for the first time during the year.

The sharpest rebound has been in the construction sector which recorded a growth of 6.2% in Q3 and is expected to improve further in Q4.

However, the services sector continued to be in the red zone. This could be attributable mainly to the trade, transport, travel, and hospitality sectors which have been hit badly due to the travel restrictions imposed by the states due to the pandemic.

Future Outlook

All the broad parameters point towards sustaining the growth trend. However, the following factors would influence the performance of the economy:

1. The ability of the government to meet the targeted increase of 29.2% in government spending in Q4 keeping the fiscal constraints in mind.

2. Easing of travel restrictions by states to open up the leisure travel and hospitality sector.

3. The construction sector and the service sector can generate both direct and indirect employment. Improved performance by these sectors could result in surplus fund availability in the hands of the consumer resulting in higher consumer spending.

IMAGE CREDITS:- ET Auto.