India’s GDP leaps in April-June quarter

India’s economy bounced back in the April-June quarter after a deep contraction last year with a turbo-charged growth of 20.1 per cent year-on-year, driven by a surge in manufacturing and higher consumer spending, official data released on Tuesday showed.

In spite of the devastating second wave of Covid-19 cases, it was the biggest quarterly growth on record since Asia’s third largest economy started publishing quarterly statistics in 1996.

According to economists, if the country can keep the growth momentum in the coming quarters, India will be well-placed to achieve its dream target of becoming a $5 trillion economy in the next five years.

The read-out for June quarter was in line with the 20.0 per cent growth forecast of analysts in a poll, and much higher than the 1.6 per cent growth rate for the previous quarter.

The economy had contracted 24.4 per cent in the same quarter a year earlier.

In fiscal 2020-21, Indian economy, one of the fastest growing economies in the world in pre-Covid era, plummeted 7.3 per cent, putting it among major economies hit hardest by the pandemic but growth was less affected by April-May’s second wave because the lockdown measures adopted then were less stringent.

However, infections from the Delta variant and the slow pace of vaccinations in some states could hit India’s growth momentum with the economy unlikely to regain its pre-pandemic size of about $2.9 trillion before the middle of the next fiscal year which begins in April.

“As vaccination pace picks up, we expect the momentum to pick up further, although we remain wary of the evolution of Delta variant cases,” said Upasana Bhardwaj, senior economist, Kotak Mahindra Bank, Mumbai. Consumer spending — the main driver of the economy — rose 19.34 per cent year-on-year in April-June from a year ago but remained lower than its pre-pandemic level.

Annual growth of 49.6 per cent in manufacturing during the three months to June compared to 6.9 per cent growth in the previous quarter showed new anti-Covid-19 measures adopted in April-May had only a limited impact on activity.

Unlike more advanced economies, which have provided massive stimulus to support consumers, Prime Minister Narendra Modi has opted to raise infrastructure spending and pursue privatisation of state companies and tax reforms to bolster India’s mid-term growth prospects, while providing free food grains to the poor.

The Reserve Bank of India, which has kept its monetary policy loose, has forecast annual growth of 9.5 per cent in the current fiscal year, although it has warned about the possibility of a third wave of the pandemic.

India’s growth outlook has meanwhile been revised downwards by analysts amid uncertainty over how badly the economy has been hit.

The International Monetary Fund in July downgraded India’s annual growth forecast to 9.5 per cent for the year to March 2022 from its previous projection of 12.5 per cent. India’s buoyant economic recovery in 2021 is estimated to be at 8.3 per cent by the World Bank while the federal government predicts a 10.5 per cent upswing. The International Monetary Fund forecasts a growth of 9.5 per cent. These recovery-year numbers, taken with the pandemic-driven drop in GDP last year of 7.3 per cent, yield an annual growth rate of about one per cent. Indeed, the World Bank says this is going to be the best recovery year for the global economy in 80 years, whereas India has a few years in the last 40 when it did better

Despite this, the South Asian nation of 1.39 billion people is expected to grow faster than any other country in 2021 due to the previous year’s record contraction of 7.3 per cent.

— issacjohn@khaleejtimes.com