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November 28, 2020 / 12:05 AM IST

Q2 GDP Data Highlights | India enters recession as GDP contracts 7.5%, but experts see V-shaped recovery

CEA Krishnamurthy Subramanian stated that each of the high frequency indicators were doing well till February until COVID-19 hit, while CSO Kshatrapati Shivaji sees V-shaped recovery.

India's GDP contracted 7.5 percent in the second quarter of FY21. Apart from this, India's gross value added stood at minus seven percent for the July-September quarter of FY 2021.

Meanwhile, India's eight core industries growth stood at (-)2.5 percent in October 2020, in comparison to (-)0.8 percent in September 2020. The data showed that the growth in the April-October 2020 in the ei

ght-core sector was (-)13 percent in comparison to 0.3 percent on a yearly basis.

Also, September 2020's industries growth has been revised to (-)0.1% percent against -0.8% earlier (YoY).

India Q2 GDP contracts 7.5%, but is it still better placed than rest of the world? 

As per the Union Ministry of Statistics and Programme Implementation (MoSPI) data, apart from the electricity, agriculture and manufacturing sector, all other sectors' growth contracted. Among the worst affected sector was trade and hotels whose growth contracted by -15.6%.

"The base effect is leading to a positive surprise on some of the numbers. The revival is indicating a V-shaped recovery. Financial, real estate and professional services are among sectors that need to be looked at more closely," CNBC-TV18 quoted Chief Statistician Kshatrapati Shivaji.

Chief Economic Advisor Krishnamurthy Subramanian stated that each of the high frequency indicators were doing well till February until COVID-19 hit. "Services are in an expansionary phase despite travel and transport impacted by the pandemic. India is in expansionary phase both on manufacturing and services, IIP indicates this," K Subramanian said on economic revival.

ICRA's principal economist Aditi Nayar said that the GDP data provided a positive surprise. She said, "The sharper than expected narrowing in the pace of GDP contraction to 7.5% in Q2 FY2021, as compared to our forecast of a 9.5% YoY decline, was primarily driven by manufacturing, electricity and construction, and to a mild extent, agriculture."

Adding more, she said, "Discouragingly, the pace of contraction of two sub-sectors, financial, real estate and professional services, and public administration, defence and other services, actually worsened in Q2 FY2021 relative to the previous quarter, serving as a reminder that the path out of the pandemic may not be smooth."

"India's real GDP declined 7.5% YoY in 2QFY21, better than the consensus but worse than our forecast. While the decline in personal consumption expenditure was in line with our forecast, investments recovered strongly but fiscal spending was extremely weak (the worst ever contraction on new series), said Motilal Oswal's economist Nikhil Gupta.

Care Ratings expects India's GDP to contract by -7.7% to -7.9% in FY21. It said, "GDP growth although expected to improve in the remaining two quarters of 2020-21 with the improved pace of pickup in economic activity across most sectors. The economy however continues to face downward pressured from the sustained spread of the pandemic in the country and the re-imposition of restrictions in various regions. Consumption demand and investments which is necessary to propel the economy would continue to be tepid and is unlikely to seen a noteworthy improvement during the course of the year. We expect the country’s GDP to contract by -7.7% to -7.9% in FY21."

The second-quarter growth expectations were significantly better than that in Q1 with the unlocking mode being on across the country. The government has been relying on some 60 high-frequency indicators to chart the recovery of the economy. A number of officials expect that the economy could be back in positive growth territory by the January-March quarter. The RBI expects contraction of 8.6 percent and a report from the central bank said that India, for the first time may be in a “technical recession” due to two successive quarters of contraction.

State Bank of India (SBI) had revised their Q2 projection to 10.7 percent fall from their previous 12.5 percent, as per SBI Ecowrap; Care Ratings projects 9.9 percent contraction and ICRA estimates it to be 9.5 percent. CRISIL has among the harshest projections of 12 percent contraction in Q2FY21, as it noted that recovery in high-frequency indicators are still below pre-pandemic levels despite some relief from April. Experts CNBC-TV18 spoke to in a poll felt that India's economy was likely to contract by 8.9 percent for the period and concurred with the RBI’s assessment of technical recession.

Most projections were much better than the 23.9 percent slump recorded for Q1FY21 by the Union Ministry of Statistics and Programme Implementation (MoSPI). Economic indicators also point to a recovery, as vehicle sales, real estate PMI and railway freight earnings continue to pick-up – outstripping even 2019 numbers.

Income Tax (I-T) collections in September 2020, for the first time this fiscal exceeded 2019 numbers, while GST collections also crossed Rs 1.05 lakh crore in October and manufacturing PMI rose to 58.9 in October – a decade-long high, due to “robust sales,” according to IHS Markit.

Anticipation for growth in sectors is high as in Q1, only the agriculture sector showed growth (3.4 percent), while other segments were squeezed – Construction (50.3 percent), manufacturing (39.3 percent), mining (23.3 percent) and communication and services, trade and transport (47 percent each).
  • November 27, 2020 / 09:37 PM IST

    That's all for today on GDP data readers, thanks for following the live blog. 

  • November 27, 2020 / 08:51 PM IST

    Samir Bhatia, Founder & CEO, SMEcorner:
    “The GDP numbers of second quarter clearly indicates that Indian economy is bouncing-back from the onslaught of the Covid-19 pandemic. The economic contraction of 7.5% in the September ending quarter is hearting compared to the previous quarter. As a lender to the MSME sector we see strong signs of recovery in several sectors. It is my strong belief that the current quarter will be much better. 

    The new loan applications reflect good cash flows and stronger sales in the MSME space. We are also seeing a strong ability of our clients to repay loans, which is reflected in our November collections, the efficiencies are expected to be at pre-Covid levels. The initiatives by the Government in terms of moratorium and relief on compounded interest have helped the MSME sector tremendously. I expect the sector to strongly bounce-back to pre-Covid levels by the last quarter of this year.”

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  • November 27, 2020 / 08:22 PM IST

    Pankaj Pandey, Head of Research, ICICI Direct:
    "GDP decline of 7.5 percent for Q2FY21 was much better than consensus estimates of 8.5-9 percent contraction.
    While the agri sector remained resilient, as expected, with a growth of 3.4 percent, the key surprise was on the manufacturing front which has sprung back above pre-covid levels.
    It is pertinent to note that corporate performance had also echoed such a trend in Q2. Recovery was also partly aided by pent up demand from consumer and industrial restocking, in our view.
    With a relatively stable festive season and lesser than expected economic damage so far, the economic growth recovery trajectory is likely to be accelerated."

  • November 27, 2020 / 08:21 PM IST

    Manju Yagnik, VCP Nahar Group:
    "GDP numbers are relatively better than expected, and given the pandemic scenario, the growth numbers are quite encouraging. India is in an expansionary phase, and the vocal to local movement will further boost the economy.  The phased wise unlocking, supported by the reduction in duties, the developer offers, lowest interest rates led to improved business sentiment in real estate, and the positive sentiment will continue till the quarter ending March 2021."

  • November 27, 2020 / 08:19 PM IST

    Binod Modi, Head- Strategy at Reliance Securities:
    "Better-than-expected GDP print is mainly supported by a strong rebound in manufacturing. While Q2FY21 GDP print marks a sharp sequential rebound, the market will be focusing more on the prospects of recovery in H2FY21.
    Given a 2.5 percent drop in core industries output for Oct’20 and a sharp 13 percent drop in consumptions (private+Govt) in 2QFY21, a meaningful recovery in Q3FY21 looks to be doubtful.
    We note that consumptions have always played an important role over the years to support economic growth, hence a faster recovery in consumptions is of utmost importance."

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  • November 27, 2020 / 07:58 PM IST

    CARE Ratings: 
    "GDP growth although expected to improve in the remaining two quarters of 2020-21 with the improved pace of pickup in economic activity across most sectors. The economy, however, continues to face downward pressured from the sustained spread of the pandemic in the country and the re-imposition of restrictions in various regions. Consumption demand and investments which is necessary to propel the economy would continue to be tepid and is unlikely to seen a noteworthy improvement during the course of the year. We expect the country’s GDP to contract by -7.7% to -7.9% in FY21."

  • November 27, 2020 / 07:54 PM IST

    Nikhil Gupta, Economist - Institutional Equities, Motilal Oswal Financial Services Ltd:
    -- India's real GDP declined 7.5% YoY in 2QFY21, better than the consensus but worse than our forecast. While the decline in personal consumption expenditure was in line with our forecast, investments recovered strongly but fiscal spending was extremely weak (the worst ever contraction on new series).

    -- Real GVA fell 7% YoY, wherein industrial sector posted a strong recovery (down only 2% YoY) but services continued to contract in double-digit. Non-farm GVA declined 8.3% last quarter.

    -- Further, our calculations suggest first sharp contraction in government spending (consumption + investments) since FY15 and the worst on new series, while the fall in private spending eased from -35% to -9% YoY in 2QFY21. Of course, these two are highly linked with each other. Net exports continued to add to GDP growth.

  • November 27, 2020 / 07:53 PM IST

    Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services: 
    "Q2 GDP contraction at 7.5% is way ahead of expectations. The 0.6% expansion in manufacturing has come as a pleasant surprise. If this trend sustains Q3 contraction will be very low and Q4 will post positive figures. If so, the annual contraction can be around 6 percent. Sharp expansions in H1 FY22 is on the cards. A 'v' shaped recovery in FY 22 is in the realm of possibility. It is important to sustain the growth momentum."

  • November 27, 2020 / 07:53 PM IST

    S Ranganathan, Head of Research at LKP Securities: 
    "The contraction in GDP during Q2 @7.5% was ahead of market expectation which was going in with a contraction of 9%. Two-Wheeler demand was robust and so was Cement demand. Smart Investors were anticipating this which was evident in the sharp upmove of over 5% this week in the NIFTY Midcap 50 and over 6% upmove this week in the NIFTY Smallcap 100. Trading Volumes on the Exchange today was at record highs. The data is in sync with Q2 earnings and commentary put out by several corporates."

  • November 27, 2020 / 07:51 PM IST

    Deepthi Mathew, Economist, Geojit Financial Services: 
    "With GDP contracting by 7.5 percent, economy entered a technical recession. However, easing of lockdown restrictions had a positive impact on the economy as the contraction in Q2 was much lower than in Q1. Consumption, the major component of GDP contracted by 11.32 percent in Q2FY21 compared to -27 percent in Q1FY21 . Investment demand as measured by Gross Fixed Capital Formation (GFCF) registered significant improvement in Q2FY21 at -7.4 percent compared to -47 percent in Q1FY21."

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  • November 27, 2020 / 07:51 PM IST

    Prithviraj Srinivas, Chief Economist, Axis Capital, Mumbai:
    “Sept Qtr GDP at -7.5% is much better than our upwardly revised -8.4% YoY. The uptick is driven by positive growth in manufacturing which was anticipated by us, but the sharp improvement in ‘trade, hotels & transportation’ is a surprise. Bunching up of demand in September Qtr has helped lift YoY growth. In addition, manufacturing has benefitted more from pent up demand than high contact services. 

    We believe personal safety and convenience is the root driver of discretionary demand in auto and durables in Q2. With the rapid pace of normalization of the economy is it clear that the size of unaffected parts of the economy is far greater than stressed sectors. Momentum in the recovery phase of the economy can be sustained by government spending, the vaccine and monetary policy tailwinds. 

    We see upside risk to our -10.3% full year FY21 forecast. For e.g. if we extrapolate current GST collections and back calculate GDP from there we shouldn’t be surprised if full year FY21 GDP is closer to -6% YoY.”

  • November 27, 2020 / 07:50 PM IST

    Chandra Shekhar Ghosh, MD and CEO, Bandhan Bank:  
    "It is indeed heartening to see the sharp recovery in India’s GDP in Q2 of FY21, compared to the severe contraction in the first quarter of the current fiscal. One hopes that this is a sustainable trend and continues over the next couple of quarters as well, before growth comes in at near-double digits in FY22. The various relief measures and policy reforms effected by the government appear to be bearing fruit and the country’s growth is being led by its agricultural and rural economy, which continued to show its resilience in this quarter as well."

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