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GDP may have expanded 1-2% in Q4FY21, bettering official estimates

Rating agencies and brokerages estimate that the economy may have contracted by 7.5% or thereabouts rather than NSO's estimates of 8% in the January-March 2021.

May 31, 2021 / 11:39 AM IST

The Indian economy may have expanded 1-2% in the fourth quarter of the fiscal year 2020-21, as the economy attempted to normalise during the January-March period before getting whiplashed by a brutal second wave of the COVID-19 pandemic. Maharashtra, a key economic state, began to experience the severity of the second wave in March before it spread to Delhi and other states such as Karnataka, Kerala and Punjab in April. The emergence of the second wave in Maharashtra may have hurt growth in March, as the state had imposed restrictions on mobility in several districts.

The expansion in the January-March quarter, after the economy came out of a technical recession in the October-December 2020 quarter, will ensure that the contraction in the full year was less than the 8% estimated by the National Statistics Office (NSO) in the second advance estimates published in February. Rating agencies and brokerages estimate that the economy may have contracted by 7.5% or thereabouts rather than 8% in the January-March 2021 quarter of 2020-21. The Reserve Bank of India had estimated the contraction at 7.5% for the full year, with an expansion of 0.7% in the fourth quarter.

India to release FY21 provisional GDP estimates today. Track live updates

The NSO is slated to release growth estimates for the fourth quarter of 2020-21 and the provisional estimates for the full fiscal on May 31.

State Bank of India group chief economic adviser Soumya Kanti Ghosh was a little more optimistic about growth prospects in the fourth quarter than the RBI. He had estimated that the economy expanded 1.3% in the fourth quarter and contracted 7.3% in the full year. SBI has relied on 41 high-frequency indicators associated with industrial, service and global activity in a “Nowcasting model” developed to arrive at growth estimates. “Based on our model, the forecasted GDP growth for the fourth quarter would be around 1.3% (with downward bias) as against the NSO’s projection of -1%. We now expect GDP decline for the full year to be around 7.3%,” Ghosh wrote in the May 2021 edition of Ecowrap, a research note on the economy.


Rating agency ICRA was a little more optimistic about the expansion in the fourth quarter. “We peg the GDP growth for the just-concluded quarter at 2%, suggesting that the double-dip recession implied for the fourth quarter of 2020-21 by the NSO’s second Advance Estimates, was averted,” ICRA chief economist Aditi Nayar wrote in a note a week ago. Its estimate for the full year was in agreement with the SBI estimate of a 7.3% contraction.

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Others such as rating agency India Ratings and brokerage house Barclays were more conservative in the estimates for the full year. They pegged the contraction at 7.6% in 2020-21.

The Indian economy had contracted 24.4% in the first quarter of 2020-21 due to a harsh lockdown that exempted only manufacturing of essential goods and provision of essential services. A gradual easing of the lockdown began on June 8 but many service sector industries were ordered to stay shut. The April-June 2020 contraction was the deepest among the G20 nations. The easing of the lockdown together with the monetary and liquidity easing and fiscal measures limited the contraction to 7.3% in the second quarter but India fell into a technical recession due to two consecutive quarters of contraction.

A tiny 0.4% expansion in the third quarter (October-December) when restaurants were allowed to start dine-in services and shopping centres buzzed with festival and wedding season shoppers helped the economy come out of the technical recession.

With infection rates falling further in early 2021, mobility increased and so did the economic activity. The Index of Industrial Production (IIP) made a smart recovery in March 2021 though from a small base, rising 22.4%, from a year ago, helped by an increase in manufacturing.  The production of chemicals, pharmaceuticals, metal and mineral products, computers, electronics and electrical goods and automobiles reported robust growth. Domestic tourism had also picked up, benefitting the hospitality industry and the airline companies. Consumption of petroleum products in the fourth quarter was about 2.5% higher than in the same period of 2019-20. All that should mean growth gained momentum during January-March 2021 period.

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Tina Edwin is a senior financial journalist based in New Delhi.
first published: May 31, 2021 11:38 am
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