8 takeaways from Q3 GDP data as economy snaps out of recession

India exited the recession in the third quarter. However, growth was slower-than-expected and for the whole fiscal year, GDP is now expected to shrink 8 percent versus an earlier estimate of 7.7 percent.

February 26, 2021 / 09:16 PM IST

India's gross domestic product (GDP) figures for the third quarter of 2020-21 were released on February 26. Here are the key points at a glance.

Economy turns around: After shrinking in the previous two quarters, India's economy expanded by a marginal 0.4 percent in the October-December quarter as national and regional lockdowns were lifted and normal economic activity slowly resumed.

But FY21 GDP growth estimate pared: According to the updated official estimates of the government, India's GDP is now expected to shrink by 8 percent in FY21, up from the 7.7 percent estimate released in January. Despite GDP growth returning in Q3, the slightly worse expectation for the entire year is borne out by a slower-than-expected growth in manufacturing and services sectors.

Manufacturing revival: As factories opened over the quarter and the challenges of sourcing labour and raw materials were overcome, the manufacturing sector grew by 1.6 percent from a year ago, after contracting 1.5 percent in the second quarter.

Agriculture growth accelerates: The only bright spot in the economy since the beginning of the pandemic, agriculture (and related sectors) continued on its growth trajectory, rising by 3.9 percent in the third quarter, building on its previous growth of 3 percent during July to September.

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Financial, real estate sectors rebound: The largest chunk of India's organised sector, this saw a growth of 6.6 percent in the latest quarter. This category had a dismal performance so far this financial year, contracting by 9.5 percent in the second quarter.

Consumer confidence still low: A key indicator of domestic demand, consumer spending continued to fall although the pace of declined slowed. Consumer spending declined 2.4 percent in the December quarter despite the festival season, suggesting that a rebound in private demand is still some time away. It may also continue to darken the overall economic climate in the near term.

Government spending picks up: Government spending continued to contract although here too the pace has fallen. In Q3, government spending contracted 1.1 percent compared to a 24 percent decline in the September-December quarter. It made up 9.8 percent of the country's economy.

Investment demand rises: Gross fixed capital formation (GFCF), a measure of investment demand, grew 2. 6 percent in the third fiscal quarter. This is a sharp recovery after a 6.7 percent contraction in Q2 and 46 percent in Q1.
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