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Expect real GDP to decline 1-2% YoY in 3QFY21

The contraction in India's real GDP can narrow down to just 1-2 per cent, said a report by Motilal Oswal Financial Services.

Expect real GDP to decline 1-2%

Expect real GDP to decline 1-2%

Mumbai, Dec 5 The contraction in India's real GDP can narrow down to just 1-2 per cent, said a report by Motilal Oswal Financial Services.

Accordingly, the in-house Economic Activity Index (EAI) for India's real GVA (EAI-GVA) grew by 4.8 per cent YoY in October 2020, marking the second consecutive month of growth.

"This is the first month in a year when non-farm activities (both industrial and services) grew faster than the farm sector," Motilal Oswal Financial Services said in a report.

The GVA includes taxes, but excludes subsidies.

Last month, the NSO data showed that on a YoY basis, Q2 GVA for 2020-21 from the agriculture, forestry and fishing sector inched lower to 3.4 per cent growth, against 3.5 per cent in the same quarter of 2019-20.

However, the EAI-GDP, continued to contract for the eighth consecutive month in October 2020 and that too faster than the previous month.

"While personal consumption expenditure (PCE) continued to contract in double-digits for the seventh consecutive month, total investments declined 5 per cent the slowest fall in eight months."

"Excluding government spending, EAI-GDP contracted 7.6 per cent YoY in Oct'20 versus a fall of 5.1 per cent YoY in Sep'20."

According to the report, overall EAI-GVA continues to show an improvement in economic activity, while demand measures continue to lag.

"Based on a few indicators available for Nov'20 - power generation, manufacturing PMI, e-way registrations, etc., growth seems to have cooled off last month."

"If so, it suggests that the growth peaked out in Oct'20 (as per our expectations) and is likely to moderate in coming months. Real GDP could contract again in 3QFY21 before posting a growth in 4QFY21. The second wave of the Covid-19 pandemic, however, remains a valid risk."

Recent data showed that even though India's economic recovery accelerated in Q2FY21 from the lows of the pandemic-induced lockdown, the country, for the very first time since Independence, entered into a technical recession.

The recent data furnished by National Statistical Office (NSO) showed that the Q2FY21 GDP, on a year-on-year basis, contracted by (-) 7.5 per cent from (-) 23.9 per cent in the preceding quarter.

Though not comparable, the GDP had grown by 4.4 per cent in the corresponding quarter of FY2019-20.

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