2nd Advance Estimates of National Income 2020-21 and Estimates of Q3

Real GDP growth of 0.4 per cent in Q3 of 2020-21 ; Economy returns to the pre-pandemic times of positive growth rates

Reflection of a further strengthening of V-shaped recovery that began in Q2 of 2020-21

Real GDP growth of 0.4 percent in Q3 of 2020-21 has returned the economy to the pre-pandemic times of positive growth rates. It is also a reflection of a further strengthening of V-shaped recovery that began in Q2 of 2020-21, after a large GDP contraction in Q1followed one of the most stringent lockdown imposed by Government relative to other countries. The 2^nd advance estimates the contraction of GDP at8.0 per cent in 2020-21.

The initial policy choice of “lives over livelihoods” succeeded by “lives as well as livelihoods” is now bearing positive results converging with the foresight Government had about an imminent V-shaped recovery when it entered the war with the Pandemic on health and economic fronts. The sharp V- shaped recovery has been driven by rebounds in both Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF) as a combination of astute handling of the lockdown and a calibrated fiscal stimulus has allowed strong economic fundamentals to trigger quick resumption of high activity levels in the economy. While GFCF has improved from a contraction of 46.4 per cent in Q1 to a positive growth of 2.6 per cent in Q3, PFCE has recovered from a contraction of 26.2 per cent in Q1 to a much smaller contraction of 2.4 per cent in Q3.

Besides the overall uptick in the economy, the resurgence of GFCFin Q3 was also triggered by Capex in Central Government that increased year-on-year by 129 per cent in October, 249 per cent in November and 62 per cent in December, 2020.The fiscal multipliers associated with Capex are at least 3-4 times larger than Government Final Consumption Expenditure (GFCE) as Capex induces much higher consumption spending than normal income transfers. However, GFCE has played a critical role since April, 2020 as apart from supporting lives and livelihoods it provided the initial stimulus to the economy.

Significant recovery in manufacturing and construction augurs well for the support these sectors are expected to provide to growth in FY 2021-22. Real GVA in manufacturing has improved from a contraction of 35.9 per cent in Q1 to a positive growth of 1.6 per cent in Q3 while in construction the recovery has been from a contraction of 49.4 per cent in Q1 to a positive growth of 6.2 per cent in Q3.These sectors are vital to the economy to achieve a growth of 11 per cent or more in 2021-22 as they will be impacted most by the counter cyclical fiscal policy that budgets fiscal deficit at 6.8 per cent of GDP.

Real GVA in Services has also improved from a contraction of 21.4 in Q1 to a negligible contraction of 1.0 percent in Q3 of 2020-21.The much lower contraction of GVA in Services sector is welcome as activity levels in contact-based services appears to have risen with the decline in the pandemic curve. A continuous decline in the pandemic curve and a step-up in vaccination drive, as recently announced will support further revival of contact-based services. Given that services constitute more than 50 per cent of total GVA in the country, it becomes the most important source for increasing consumption in the economy. Real GVA in Agriculture continues to provide vital support to the economy having grown from 3.3 per cent in Q1 to 3.9 per cent in Q3.

India is not yet out of the danger of the pandemic. Social distancing continues to be the most effective tool to combat the pandemic as activity levels continue to rise in the economy boosted by the rapidly escalating inoculation drive in the country.  

Economic recovery resumes positive growth as GDP rebounds and investment-led stimulus supports revival in services and manufacturing. Real GDP returned to positive growth in Q3 2020-21 as a V-shaped recovery progressed, driven by rebounds in Private Final Consumption Expenditure and Gross Fixed Capital Formation. Central government capital expenditure materially supported the investment recovery, with capital spending having larger fiscal multipliers than government consumption. Manufacturing and construction shifted to positive growth, services markedly narrowed its contraction, and agriculture continued to contribute positively. The release notes ongoing pandemic risk and that declining cases and accelerated vaccination are important to sustain services-led revival.