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GDP Data: Numbers better than expected, but experts say vaccination pace key to consumption growth

For the full financial year (FY21), the gross domestic product (GDP) growth contracted 7.3 percent. But it grew 1.6 percent in the fourth quarter (January-March) of the financial year (FY21).

May 31, 2021 / 07:29 PM IST
The real concerns right now are around how the consumption story across sectors will pan out, considering that lockdown-like restrictions continue across the country.

The real concerns right now are around how the consumption story across sectors will pan out, considering that lockdown-like restrictions continue across the country.


India's gross domestic product (GDP) contracted by 7.3 percent in FY21 even as the country's economy grew by 1.6 percent in the fourth quarter (January-March) of the financial year 2020-21 (Q4FY21).

Corporate experts are of the view that while the numbers are better than expected, there is a need to adopt a 'wait-and-watch' approach for FY22 considering the second wave of COVID-19

Madhavi Arora, Lead Economist, Emkay Global Financial Services said that the better-then-expected growth print partly owes it to healthy corporate results in March quarter of FY21.

"We admit the situation is still in a flux, and it is too nascent to gauge the true impact of the second wave on macro variables. We believe that the impact is unlikely to be of the same magnitude as last year. Clearly, factors such as better adapted firms and policy response, stable financial conditions and robust global growth spillovers create growth buffers back home," she said.

Among the different sectors, the manufacturing sector recovered during the fourth quarter of the financial year 2020-21 recording growth of 6.9 percent in January to March period, compared to a contraction of 4.2 percent during the same period last year.

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Rohit Poddar, Managing Director, Poddar Housing and Development said that the second wave of pandemic may temporarily slower the economic growth in Q1FY22, however, the nationwide vaccination drive has helped in improving the business sentiment across the country.

"From a real estate standpoint, construction has also risen by 14.5 percent owing to the foresight of the first wave and the tailored reforms to keep businesses and construction operational," added Poddar.

Data showed that trade, hotels, transport and communication sector saw a de-growth of 2.3 percent even though the level of contraction reduced compared to the previous quarters.

Siddhartha Sanyal, Chief Economist and Head-Research, Bandhan Bank said that they recognise that GDP prints for Q1FY22 will also likely come in strong in double digits given the markedly favourable base reflecting last year’s abrupt nation-wide lockdown and major loss of economic activities.

Sanyal added that though today’s GDP print is a positive surprise, it will likely not materially influence the RBI’s monetary policy decision later this week.


The real concerns right now are around how the consumption story across sectors will pan out, considering that lockdown-like restrictions continue across the country.


Sreejith Balasubramanian, Economist-Fund Management, IDFC AMC said that with the onset of the second wave, the key aspects really are how would household income and consumption shape up, the impact on and thus the contribution from the rural economy this time and investment and lending behaviour.


"With exports alone insufficient to drive growth in the medium-term, demand visibility and thus a growth-cycle in employment and wages becomes critical," he added.


Going forward, corporates and economists anticipate that the vaccination drive and its pace as well as unlocking guidelines will decide how the numbers shape up.


Aditi Nayar, Chief Economist, ICRA said that while the industrial growth exceeded our projection, service sector growth was lower-than-anticipated at 1.5 percent in Q4FY21.


"The continued impact of the pandemic on contact-intensive services resulted in trade transport hotels transport communication and services related to broadcasting being the second worst performing sub sector in Q4FY21," she added.


When it comes to the outlook, Nayar said that the economic outlook remains highly uncertain, and periodic material revisions to the growth forecasts may persist in FY2022, as was the case in FY2021.

At present, ICRA expects real GDP to expand in the range of 8-9.5 percent in FY22.



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first published: May 31, 2021 07:29 pm
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