Expert views on India's economy shrinking 7.5% in July-Sept quarter

BENGALURU (Reuters) - India's economy contracted 7.5% in the quarter to September, according to official data on Friday, showing some signs of a pick-up after the easing of pandemic restrictions that triggered a record contraction in the previous quarter.

The read-out for the September quarter was better than the 8.8% contraction forecast of analysts in a Reuters poll.

 

COMMENTARY

 

KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU

 

"While farm sector growth was in line with our expectation, it appears that substantial inventory building in anticipation of pent-up and festival period-led demand provided a boost to the manufacturing activity.

That said, we believe that a rather low GDP deflator has resulted in higher-than-expected real GDP growth. But with signs of emerging fatigue in recent demand uptick and the second wave of infection already impacting economic activity, we would retain our view of FY21 real GDP contracting by 8.6%, given the likelihood of a much weaker third-quarter activity."

 

SHASHANK MENDIRATTA, ECONOMIST, IBM, NEW DELHI

 

"Growth data for Q2 indicates recovery in output from the sizeable negative shock in June quarter. Cushioned by agriculture growth and manufacturing output, economic activity improved during the quarter. In terms of drivers, a combination of pent-up demand, rural push and festive season demand likely underpinned this recovery. The improvement notwithstanding, GDP still declined by 7.5% y/y in Q2FY21.

 

The recovery will need to be carefully monitored due to lingering risks. After an uptick in early November, high frequency indicators are beginning to show fatigue. Possibility of dwindling pent-up demand and rising infections could limit broader gains.

 

SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI SECURITIES, MUMBAI

 

"The numbers were slightly better than expected. Most of the high frequency data were suggesting a V-shaped recovery. In line with that, we expect significant recovery in the quarter ending December. For the overall year, we expect the GDP contraction close to 8%. Still, inflation remains high and significant part of this rebound could be because of pent-up and festive demand."

 

RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL SERVICES, MUMBAI

 

"Today's statistics show that GDP contraction has narrowed, partly helped by decent agricultural growth and some pick up in manufacturing activities.

However, critical employment generating sectors like construction, mining and services continue to stay weak. This data needs to be interpreted with caution as India has a very large unorganised sector and the measurement of its value added was not feasible due to restrictions on the movement of data collectors."

 

GARIMA KAPOOR, ECONOMIST - INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI

 

"Today's GDP print increases our confidence that recovery is gaining pace and is becoming more broad-based. While during the initial period of unlocking, rural economy's buoyancy was supportive, urban demand too has begun to normalize in pre-festive period.

Although the resurgence of COVID cases in key cities in India as well as globally remains a risk, we believe that a significant part of the demand resurgence in India is attributable to Tier 3 and Tier 4 cities and rural India and hence the downside risks to growth remain capped. We retain our FY21 GDP growth forecast to -7%."