The Indian economy picked up steam from July to September, gradually returning to normality as coronavirus-related disruptions subsided in the wake of a disastrous second wave.
The government released data on Tuesday showing that the country’s gross domestic product (GDP) increased by 8.4% from the previous quarter, one of the quickest rates among major economies.
The GDP print for the September quarter was estimated to be 8.3% by Bloomberg. In the same period the previous year, the GDP shrank by 7.4%.
The Indian economy grew at a record pace of 20.1% in the first quarter, owing to the low base of the previous year.
Without accounting for inflation, GDP increased by 17.5% in nominal terms during the second quarter under review.
During the quarter under review, manufacturing production climbed by 5.5%, while construction output jumped by 7.5%.
For the period under consideration, gross fixed capital formation, which is a measure of investments in the economy, increased by 11%.
The situation in India has improved in recent months after being slammed by a disastrous rise of viral infections sparked by the Delta variety earlier this year. After peaking at 4,00,000 cases in May, daily incidences have dropped substantially to under 10,000, and vaccination rates have increased, giving companies and industries more confidence in reopening. The country’s streets and marketplaces are suddenly bustling with activity.
However, with the appearance of the Omicron variety, the economy is still in jeopardy, since the new heavily mutated variant may easily cause chaos. According to the World Health Organization, Omicron presents a significant risk of infection outbreaks, which might have “serious repercussions” in certain areas.
“The economy gained traction in the second quarter, as shown by GDP growth of 8.4% in Q2. On the supply side, agricultural growth aided the recovery, as did a 10.2% increase in service sector growth as contact-intensive businesses, as well as the banking and real estate sectors. Demand was bolstered by an increase in investment. “GDP growth momentum has shifted to the positive in the second quarter, after a decrease in the first,” stated Sakshi Gupta, Senior Economist at HDFC Bank.
Meanwhile, private consumption, which is a key contributor to the economy, rose by 8.6% in the September quarter, as measured by Private Final Consumption Expenditure (PFCE).
Mining and quarrying production increased by 15.4% during the quarter, while electricity, gas, water supply, and other utility services output increased by 8.9%.
“GDP growth in Q2 was a touch lower than expected, owing to disappointment in the industrial sector’s rebound, particularly in manufacturing.” Even as elevated inflation and weak rural sentiments emerge as risks on the horizon, the impressive momentum of vaccination, the releasing of pent-up demand primarily in the services sector, a nascent uptick in private investment appetite, and the accelerated momentum of government spending in H2FY22 will remain supportive hereon, said Garima Kapoor, Economist-Institutional Equities, Elara Capital.
A rise in economic activity was also attributed to a higher rate of vaccinations and a decrease in illnesses throughout the quarter. However, the current danger posed by the Omicron variety looms large, prompting the reinstatement of travel restrictions. While the Indian economy has yet to be affected, the news is impacting currency and stock market sentiments.
In the July-September period, the services category, which includes hotels and transportation, grew by 8.2%.
In the future, the Reserve Bank of India (RBI), which has slashed key interest rates to record lows and injected huge liquidity to prop up the economy, is largely anticipated to suck out liquidity before normalising rates, due to rising inflationary fears.
In the current fiscal year, the Central Bank predicts annual growth of 9.5%. Meanwhile, Moody predicts that India’s economy will recover significantly in FY22, with a GDP growth of 9.3%. This is due to increased government investment and increasing demand.
“The increase in GDP growth in Q2 was in line with expectations.” Most high-frequency economic indicators have risen above pre-COVID-19 levels as vaccination rates have climbed and the economy has returned to normality. According to Rajani Sinha, chief economist and national director of research at Knight Frank India, corporate performance has been demonstrating a strong recovery in the economy as evidenced by quarterly results.
S&P Global Ratings today retained India’s economic growth projection for the fiscal year ending March 2022 at 9.5% but upped its forecasts for the following year as the recovery broadens.
“India is figuring out how to deal with the virus.” According to S&P Global Ratings, the stringency index has fallen, mobility has returned, and consumer and business confidence has improved since the peak of COVID-19 cases around mid-year.
“The 8.4% year-on-year increase in GDP in Q2 came in close to our expectations. The reduction in annualised growth is unsurprising, given that it is due to the statistical base effect diminishing. Quarter-on-quarter, GDP increased by a healthy 10.4%. According to Vivek Kumar, an economist at Quanteco Research, “We anticipate the combination of additional unlocking as well as a step-up in vaccine coverage to continue supporting sequential growth, which would also benefit from festival-related demand, vengeance spending, and pent-up demand.”