GDP Back In Black In Q3: Despite Some Blips, The Covid Recession Is Behind Us

As widely expected, India is officially back on the growth path from the third quarter of 2020-21.

The October-December 2020 quarter posted a tiny, but positive, 0.4 percent growth, against declines of 24.4 percent and 7.3 percent in Q1 and Q2. The recession is over, and we are back on track.

But there’s both good and bad news in the latest numbers emanating from the National Statistics Office (NSO), which released the Second Advance Estimates of GDP and the third quarter numbers today (26 February).

The good news is that the economy’s gross value added (GVA) is more positive than the overall GDP numbers.

Since GDP is GVA plus taxes minus subsidies, it implies that underlying value addition in the economy is picking up.

In GVA terms, growth in Q3 is one per cent at constant prices and a perky 4.3 percent in current prices. GDP is a positive 0.4 percent in real terms and 5.3 percent in current prices, which is reflective of what the government is doing on the taxation front.

One can expect more positive news in the fourth quarter, which ends in March.

Some of the good news coming from the sectors include the following: three sectors which were in decline in Q1 and Q2 -manufacturing, construction and finance and real estate are back in growth mode in terms of GVA. This leaves only mining and quarrying, trade, hotels and communications, and public administration, defence and other services, in negative territory, but even here the negativity is lower than in Q2.

The bad news: the second advance estimates of GDP show overall GDP contracting by 8 percent, higher than the earlier estimate of 7.7 percent.

The data put out by the NSO shows that per capita GDP will contract by 8.9 percent in real terms and by 4.8 percent in current prices.

This means the average Indian is seeing a shrinking of income both in money and real terms. It is not exactly a situation conducive to promoting consumption and growth. (Read the full NSO report here).

The better news probably lies ahead, as the recent budget boosts government spending, including spending on infrastructure. This should boost growth in fiscal 2021-22, especially given the negative base of 2020-21.

A caveat though is in order: the pandemic has impacted the collection of economic data by the NSO, and so there is no guarantee that we will not see volatility in the final GDP estimates later this year, when better data comes in.

The NSO release has this to say: “The measures taken by the government to contain the spread of the covid-19 pandemic have had an impact on economic activities as well as on the data collection mechanisms. The data challenges in the case of other underlying macro-economic indicators like IIP (Index of Industrial Production) and CPI (Consumer Prices Index), used in the estimation of national accounts aggregates and specific measures, if any, taken by the government in the following months with a view to address the pandemic-led economic situation will have implications on subsequent revision of these estimates. Estimates are, therefore, likely to undergo sharp revisions for the aforesaid causes in due course, as per the release calendar. Users should take this into consideration when interpreting the figures.” (italics mine)

This means the NSO data may spring sharp surprises about past data. But what we can surely expect is a sharp bounce-back in 2021-22. That cannot be in doubt, now that the recession is formally over.