The GDP growth of 0.4 per cent in the December quarter shows that the economy has returned to pre-pandemic times and reflects further strengthening of a V-shaped recovery, the finance ministry said on Friday. After contracting for two quarters in a row, the Indian economy recorded a 0.4 per cent growth in the October-December quarter, mainly due to good show by farm, manufacturing, services and construction sectors.
The National Statistical Office (NSO) estimated the economy to contract 8 per cent during the full fiscal. The economy had shrunk by an unprecedented 24.4 per cent in the April-June quarter bearing the burnt of the lockdowns imposed due to coronavirus pandemic. Economic activity recovered somewhat in the July-September period and the contraction was 7.3 per cent.
"Real GDP growth of 0.4 per cent in Q3 of 2020-21 has returned the economy to the pre-pandemic times of positive growth rates. It is also a reflection of a further strengthening of V-shaped recovery that began in Q2 of 2020-21, after a large GDP contraction in Q1 followed one of the most stringent lockdown imposed by government relative to other countries," the ministry said in a statement. The ministry said the initial policy choice of "lives over livelihoods" succeeded by "lives as well as livelihoods" is now bearing positive results converging with the foresight the government had about an imminent V-shaped recovery.
The recovery has been driven by rebounds in both Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF) as a combination of astute handling of the lockdown and a calibrated fiscal stimulus has allowed strong economic fundamentals to trigger quick resumption of high activity levels in the economy, it added. While GFCF has improved from a contraction of 46.4 per cent in the June quarter to a positive growth of 2.6 per cent in the December quarter, PFCE has recovered from a contraction of 26.2 per cent in the June quarter to a much smaller contraction of 2.4 per cent in the December quarter "Besides the overall uptick in the economy, the resurgence of GFCF in Q3 was also triggered by capex in central government that increased year-on-year by 129 per cent in October, 249 per cent in November and 62 per cent in December, 2020," the ministry added.
It said significant recovery in manufacturing and construction augurs well for the support these sectors are expected to provide to growth in FY 2021-22. Real Gross Value Added (GVA) in manufacturing has improved from a contraction of 35.9 per cent in Q1 to a positive growth of 1.6 per cent in Q3 while in construction the recovery has been from a contraction of 49.4 per cent in Q1 to a positive growth of 6.2 per cent in Q3.
"These sectors are vital to the economy to achieve a growth of 11 per cent or more in 2021-22 as they will be impacted most by the counter cyclical fiscal policy that budgets fiscal deficit at 6.8 per cent of GDP," the ministry said. The much lower contraction of GVA in the services sector is welcome as activity levels in contact-based services appears to have risen with the decline in the pandemic curve. A continuous decline in the pandemic curve and a step-up in vaccination drive, as recently announced will support further revival of contact-based services, it added.