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Q2 GDP data: Manufacturing enters positive zone, construction continues to see contraction

Manufacturing saw a growth of 0.6 percent in July-September of 2020-21, against a contraction of 0.6 percent in the same period a year ago, while construction saw a contraction of 8.6 percent, against a growth of 2.6 percent in the same period a year ago

November 28, 2020 / 12:04 AM IST

Manufacturing entered positive terrain with a growth of 0.6 percent in July-September of 2020-21, against a contraction of 0.6 percent in the same period a year ago, according to the gross domestic product (GDP) data released by the National Statistics Office on November 27.

"While manufacturing volumes had continued to contract, the GVA of this sector posted a marginal 0.6 percent growth in Q2 FY2021, on the back of aggressive cost-cutting measures, a pared down wage bill and benign raw material costs, said Aditi Nayar, principal economist, ICRA.

Experts and economists have pointed out that as it was expected that a combination of pent up and festive demand would play a role in pushing up demand, manufacturing sector geared itself up by building inventory through the months of August and September.

"Yet this manufacturing growth needs to be taken with a pinch of salt, because it is on a low base as second quarter of FY20 GDP which had witnessed a growth of negative 0.6 percent," Sunil Kumar Sinha, principal economist and director public finance, India Ratings & Research said.

Construction saw a contraction of 8.6 percent in the period under review, against a growth of 2.6 percent in the same period a year ago. Trade, hotels, transport, communication and services related to broadcasting saw a contraction of 15.6 percent, against a growth of 4.1 percent in the same period a year ago.

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Electricity, gas, water supply and other utility services saw a growth of 4.4 percent in July-September of 2020, against a growth of 3.9 percent in the same period a year ago.

"... the extent of the recovery in the performance of the informal sectors in Q2 FY2021 remains unclear, and we caution that trends in the same may not get fully reflected in the GDP data, given the lack of adequate proxies to evaluate the less formal sectors," Nayar said.

India enters recession as GDP contracts 7.5% in July-September

Indian economy witnessed its steepest fall ever during the lockdown months. India’s GDP contracted by 23.9 percent in the April-June quarter of the current fiscal year, which were primarily the months of a nationwide lockdown due to the COVID-19 pandemic.

Barring the agriculture sector, which grew 3.4 percent during the first quarter of 2020-21, all other segments were in the red. Manufacturing, mining, and construction contracted 39.3 percent, 23.3 percent, and 50.3 percent, respectively, while trade, transport, communication and related services contracted by 47 percent.

Since then, a number of high-frequency indicators have shown gradual signs of pick up, pointing towards overall economic recovery in the country. By September in fact, indicators like vehicle sales, real estate, manufacturing PMI, and railway freight earnings, had outstripped September 2019.

For the first time this year, income tax collections in September 2020 exceeded that of the same month last year, while goods and services tax (GST) collections crossed Rs 1.05 lakh crore in October.

The IHS Markit Manufacturing PMI rose to 58.9 in October, the highest in more than a decade, compared to 56.8 in September, driven by robust sales.

The government was 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 Indian economy is facing the most unprecedented shock in economic activities due to the COVID-19 pandemic-induced lockdown.

The nationwide lockdown that was announced on March 25 to help stop the spread of COVID-19 had brought all economic activity to a grinding halt. Phased easing that began since May had not been able to show any encouraging signs of recovery in the first quarter. The festive and pent-up demand have come as a respite, but it needs to be seen how long the pick up can maintain pace.

 
Kamalika Ghosh
first published: Nov 27, 2020 06:11 pm
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