India’s economic growth in the December quarter is a “reflection of a further strengthening of V-shaped recovery that began in Q2 of 2020-21,” finance ministry said on Friday. After contracting for two straight quarters, India’s gross domestic product (GDP) witnessed marginal growth of 0.4% year-on-year in December quarter. The recovery is on the back of astute handling of the lockdown and a calibrated fiscal stimulus, the ministry added.
“The sharp V- shaped recovery has been driven by rebounds in both Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF) as a combination of astute handling of the lockdown and a calibrated fiscal stimulus has allowed strong economic fundamentals to trigger quick resumption of high activity levels in the economy,” the statement read.
“The initial policy choice of “lives over livelihoods” succeeded by “lives as well as livelihoods” is now bearing positive results converging with the foresight Government had about an imminent V-shaped recovery when it entered the war with the Pandemic on health and economic fronts,” it added.
While GFCF has improved from a contraction of 46.4% in Q1 to a positive growth of 2.6% in Q3, PFCE has recovered from a contraction of 26.2% in Q1 to a much smaller contraction of 2.4% in Q3.
The revival of investment demand triggered by capital spending by the Centre, the finance ministry said. “Besides the overall uptick in the economy,the resurgence of GFCFin Q3 was also triggered by Capex in Central Government that increased year-on-year by 129% in October, 249% in November and 62% in December, 2020.The fiscal multipliers associated with Capex are at least 3-4 times larger than Government Final Consumption Expenditure (GFCE) as Capex induces much higher consumption spending than normal income transfers,” the statement mentioned.
The manufacturing and construction sector saw significant recovery in the December quarter. Real Gross value added (GVA) in manufacturing improved from a contraction of 35.9% in Q1 to a positive growth of 1.6% in Q3. In construction sector, the recovery was contraction of 49.4% in Q1 to a growth of 6.2% in Q3. Real GVA in services has improved from a contraction of 21.4% in Q1 to a contraction of 1.0% in Q3 of 2020-21.Real GVA in agriculture grew from 3.3% in Q1 to 3.9% in Q3.
A continuous decline in the pandemic curve and a step-up in vaccination drive, as recently announced will support further revival of contact-based services, the ministry added.
In the July-September quarter, India’s GDP contracted 7.5% year-on-year. The economy shrank 23.9% year-on-year in the April-June quarter in the wake of coronavirus outbreak and nationwide lockdown to prevent the virus. NSO revised GDP growth for June and September quarters to -24.4% and 7.3% respectively against earlier estimates of -23.9% and -7.5%.
“India is not yet out of the danger of the pandemic. Social distancing continues to be the most effective tool to combat the pandemic as activity levels continue to rise in the economy boosted by the rapidly escalating inoculation drive in the country,” it further added.