GDP grows by 0.4% in Q3 as FY21 sees an 8% drop


After two consecutive quarters showing a downward trend in GDP, it went up by 0.4% in the third quarter although it might slip a bit in the fourth quarter as per National Statistical Office. This 8% drop is the sharpest contraction that has ever been recorded. The sharpest contraction before this was 7.7%. An increase in private consumption, government investments, and an excellent performance by the agriculture sectors, manufacturing, banking, and real estate have aided this slight recovery.

Due to the pandemic, NSO had to face a lot of challenges in data collection and had to do a lot more extrapolation than usual to calculate GDP.NSO is said to rely more on the financial performances of large listed companies that may be cornered market share from smaller firms that have gauged the gross value added (GVA) by the industry. Therefore, these results could be less reflective of the darker realities of the SME, small traders, and informal sector. Seen from a broader level, the economic activities are below pre covid level. The second advance has estimated that there could be a contraction of GDP by 1.1% in the last quarter due to the back-ended release of subsidies by the government while there would an improvement in GVA growth to 2.5% in the fourth quarter. But since the demand is somewhat muted even now, and the pricing power gained by large companies may not be sustainable, the government has to spend more to support the economy.

It can be observed that the government has indeed stepped on that front as they successfully roped in CPSEs in the venture but the state governments who have been revenue-starved were forced to show their CAPEX. The overall spending of the Central government grew 49% in January as opposed to 29% and 48% in December and November respectively while the budget CAPEX grew 335% on year in January up from 63% and 249% in December and November respectively. Private consumption saw a much lower contraction in Q3FY21 (-2.4%) compared to -11.3% and 26.3% in Q2 and Q1 respectively.

Nominal GDP is estimated to contract by 3.8% in FY21 as against an estimated fall of 4.2%. This will help in reducing the fiscal deficit from 9.5% to 9.4%. Exports and imports have also begun to recover. The finance ministry said that the growth in Q3 reflects a V-shaped victory with the strong CAPEX by the center. An Indian Economist, Kunal Kundu said that a pick-up in investment allowed the economy to have marginally positive growth.

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