Amid the swirling grim projections of the raging pandemic, comes a bit of good news. India's economy recouped faster than expected in the September quarter, as a pick-up in manufacturing helped GDP clock a lower contraction of 7.5 per cent and held out hopes for further improvement on consumer demand bouncing back.
Economists are optimistic that the worst is over, as manifest in the record 23.9 per cent slump in the April-June period, when the coronavirus induced lockdown brought economic activity to a standstill.
A cautiously optimistic Chief Economic Adviser Krishnamurthy Subramanian said the GDP numbers were "quite encouraging," given the pandemic and against the backdrop of the previous quarter’s performance. However, India needs to tread with caution, given the evolving situation.
Though strictly speaking, the second straight quarter of contraction has pushed India into its first technical recession, the gradual loosening up of the economy has added another strand to the ongoing momentum.
Manufacturing, for instance, clocked a surprise 0.6 per cent growth in July-September after it had shrunk by a massive 39 per cent in the preceding quarter.
Continuing its good showing, the agriculture sector grew by 3.4 per cent, while electricity and gas expanded 4.4 per cent. Analysts and economists, who had projected that the economy will shrink for the full fiscal, had expected a wider contraction in Q2.
But that did not happen in the construction sector, which is the second-largest employer in the economy and contracted only 8.6 per cent in Q2 versus (-) 50 per cent in Q1.
The sustainability of the recovery, of course, depends on the spread of the pandemic. On the flip said, financial and real estate services shrank 8.1 per cent in the second quarter of FY21 from a year ago, while trade, hotels, transport and communication declined 15.6 per cent. Public spending was down 12 per cent.
Rumki Majumdar, economist, Deloitte India, said recent high-frequency data suggests a quicker rebound ahead. "The possibility of a release of several highly effective vaccines gives us hope that there is an end date to the pandemic, even if it may not be immediate," Majumdar said.
Stating that the numbers are surely not as gloomy as was being made out, Mayur Dwivedi of Religare Enterprises said it now remains to be seen whether this momentum is sustained in the remaining two quarters of FY21.
Reserve Bank of India Governor Shaktikanta Das had on Thursday stated that the recovery from the lockdown has been stronger than expected and the economy could show growth in the fourth quarter.
Post Q2, there has also been a pick-up in consumer demand for autos and non-durables, possibly owing to the onset of the festival season.
Most rating agencies had projected that the fall in India's GDP for the second quarter of 2020-21 would be arrested and settle in single digits.
Niti Aayog Vice Chairman Rajiv Kumar said the economic recovery was a 'pleasant surprise'. "Manufacturing shows a positive growth which is the confirmation of a rebound of demand led recovery," he tweeted.
The growth recorded by major global economies, including the United States, Japan and Germany during the quarter ending on September 30, has raised expectations that India would also enjoy a revival.
However, doomsayers are aplenty: A report by Oxford Economics released earlier this month said that India would be the worst-affected economy even after the pandemic eases, stating that annual output would be 12% below pre-virus levels through 2025.