Q2 GDP: Experts Hope for Faster Rebound

On expected lines, the GDP data for the July-September quarter (Q2) of 2020-21 showed that the Indian economy contracted 7.5 per cent when compared to the same quarter last year. The earlier fear was that the contraction could be much worse, particularly after the Q1 GDP numbers of negative 23.9 per cent had come in. 

The Q2 GDP numbers for July-September 2019 stood at 4.5 per cent year-on-year growth. This time, it was -7.5 per cent or negative 7.5 per cent as per the official data released by the National Statistics Office. Experts are happy, especially after the -23.9 per cent year-on-year contracted that was seen in Q1 (April, May, June 2020), the current figures usher in new hope in a faster rebound of the economy. 

Says Dr. Joseph Thomas, Head of Research - Emkay Wealth Management: "The pandemic and lockdown-induced economic contraction seem to be gradually slowing down with the Q2 GDP contraction at -7.50 per cent. This looks relatively better compared to a contraction of -8 per cent to -9 per cent which was widely expected."

Agrees Sreejith Balasubramanian, Economist - Fund Management, IDFC AMC. In fact, Balasubramanian points to manufacturing growth. "As expected, manufacturing growth was strong with the y/y number turning positive, alongside agriculture, but services (including public administration in line with the y/y fall in Q2 government spending) and construction growth was still negative," he says.

The Q2 GDP numbers show while agriculture is positive at 3.40 percent, construction and mining remains in negative territory. According to Thomas, the second half of FY21 is expected to be "mildly positive". "So, the economic contraction is gradually slowing down. There is nothing extraordinary about the numbers but there is a clear implied reassurance of a gradual recovery ahead,’’ adds Thomas.

Rumki Majumdar, Economist, Deloitte India says she is not surprised. “The contraction in the first two quarters of this fiscal year is no surprise. Since the quarterly data of GDP is released with a lag of two months, we should look at these numbers in the rear-view mirror keeping in perspective that recent high-frequency data possibly suggest a quicker rebound ahead," says Majumdar.

Is a rebound likely to be faster? Yes, it may very well be the case, say experts. "The possibility of a release of several highly effective vaccines soon gives us hope that there is an end date to the pandemic, even if it may not be immediate. Three drivers will ensure a sustained economic revival and rehabilitation; inclusive job growth, a robust services sector rebound, and a sustained recovery in private demand. Stimulus announcements by the government, liquidity measures by the RBI, and difficult reforms (such as the labour and agricultural reforms)  will aid in all three in the months ahead,” says Majumdar of Deloitte India.

Sanjay Kumar, CEO & MD, Elior India says he hopes that demand stimulation will take place on the back of the rural economy. "For this private household consumption and investment are both important. Having said that, the sustenance for economic growth comes from the consuming middle-class, which continues to be under significant stress post the pandemic. The current contraction is a mix of the economic slowdown that one saw pre-COVID and is compounded with the crisis caused due to pandemic. Hence, the next two quarters will be critical, a smart recovery in these quarters will then pave the way for future growth,” says Kumar.

In the same July to September quarter, neighbour China has recorded a 4.9 per cent growth. Among developed nations, the United Kingdom has reported a negative 9.6 per cent figures. In fact, most credit rating agencies had revised their outlook for the Indian economy post-July. CRISIL had pegged the numbers for India for Q2 at less than 10 per cent contraction, down two percentage points. Others did too.