Despite some green shoots being visible in the economy, India’s GDP figure has been in a negative zone for two consecutive quarters. GDP had expanded 4.4 percent in the corresponding period from July to September 2019-20.
GDP recorded the steepest decline in more than 40 years in the June quarter due to lockdown measures, leading to negative 14% GDP growth expectations for the full fiscal year. However, the resumption of economic activities lately may have led to some revisions.
The recent development of the Covid-19 vaccine has propelled equity markets to repeated record highs and fueled hopes for a rebound in economic activity. That, along with holiday-driven demand, has increased optimism among economists over the past month.
However, a resurgence of coronavirus cases in some parts of the country leading to further lockdowns is likely to further damage ongoing supply-side disruptions such as transportation, increasing the risk of high inflation during a prolonged period.
As some states reimposed restrictions this week to combat a second wave of infections, companies feared the restrictions could slow the pace of recovery in the next two to three months, as well as increase the risk of inflation.
The positive momentum in the second quarter is based primarily on two factors: the anticipation of a pick-up in demand during festivals and the rebound in corporate earnings, which, though, has been driven more by cost savings than revenue growth.
Indeed, sales growth continued to be negative in the second quarter, but the overall figures are positive as cost savings have focused more on wage bills, energy, and fuel and sales expenses, combined with a drop in the growth of raw material costs due to falling sales.
According to a recently released report by the Reserve Bank of India (RBI), the economy may have entered a technical recession for the first time with two successive quarters of contraction.
However, a series of economic indicators in recent weeks have pointed to an increasing rate of recovery and there are expectations that the third or fourth quarter could register a small positive growth.
In another set of published data, growth for eight major industries was -2.5% in October versus -0.1% (revised from the previous -0.8%) in September.
(With contributions from the agency)
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