global economy

Indian growth jumps in April-June 2021, helped by looser pandemic curbs

Reuters
Indian growth jumps in April-June 2021, helped by looser pandemic curbs

FINANCIAL DISTRICT. Mumbai's skyline is pictured in India, April 24, 2020.

Hemanshi Kamani/Reuters

The expansion nevertheless falls short of the Reserve Bank of India's prediction

India’s economy rebounded in the April-June quarter even while a devastating second wave of COVID-19 swept the country, with growth of over 20% compared to a year earlier driven by a surge in manufacturing and higher consumer spending.

The expansion nevertheless fell short of the 21.4% predicted by the central bank, which some analysts said would make the Reserve Bank of India (RBI) more likely to retain its accommodative stance until at least year-end.

Gross domestic product expanded 20.1% in April-June, the first quarter of India’s fiscal year, compared with the same period a year earlier, driven mainly by manufacturing and construction, the statistics ministry said on Tuesday, August 31.

That was in line with a Reuters poll forecast of 20% and compared with a record contraction of 24.4% in the same quarter of 2020.

The period included April-May’s second wave of the coronavirus pandemic but activity was less affected than during last year’s initial spread because lockdown measures adopted were less stringent.

The Indian economy, Asia’s third largest, shrank 7.3% in 2020-2021, putting it among major economies hit worst by the COVID-19 crisis.

The government’s chief economic adviser KV Subramanian said private investments and consumer spending were driving a V-shaped recovery, and that the economy was well placed to deal with the impacts of any move by the US Federal Reserve to tighten liquidity.

“India is poised for stronger growth,” he said, citing government reforms and the easing of inflationary pressures while cautioning that certain services were still not seeing “green shoots.”

While advanced economies have provided massive stimulus to support consumption, Prime Minister Narendra Modi has opted to raise infrastructure spending and pursue privatization of state companies and tax reforms to bolster India’s growth prospects, while providing free food grains to the poor.

The RBI, which has kept its monetary policy loose, has forecast annual growth of 9.5% in the current fiscal year while warning about the possibility of a third pandemic wave.

Consumer spending, the main driver of the economy, rose 19.34% year-on-year in April-June from a year ago, but remained lower than its pre-pandemic level.

Investment rose 55.3% compared with growth of 10.9% in the previous quarter, while state spending contracted 5% after growing 28.3% in January-March, Tuesday’s data showed.

Annual growth of 49.6% in manufacturing in April-June was a leap from 6.9% in the previous quarter and showed new anti-COVID-19 curbs had only a limited impact on activity.

Must Read

Economists doubt India’s new loan guarantees will boost growth

Economists doubt India’s new loan guarantees will boost growth
Risk of spike in infections

Many analysts said the risk of spiking infections from the Delta variant and the sluggish pace of vaccinations in some states could slow momentum, however, with the economy unlikely to regain its pre-pandemic size of about $2.9 trillion before the middle of fiscal year 2022-2023.

“Vaccination progress will be crucial, given the possibility of a third wave of infections and the experience of countries which witnessed it,” said Sreejith Balasubramanian, economist-fund management at IDFC AMC in Mumbai.

Retail, auto sales, farm output, construction, and exports have all picked up since June, supporting the government’s claim of a fast recovery, but sectors such as transport and tourism spending remain weak.

Many forward indicators remain below pre-pandemic levels, noted Shashank Mendiratta, economist at IBM in New Delhi.

“With substantial slack still in the economy, continued policy support will be required to get activity back to normalcy,” he said. – Rappler.com