GDP to be in growth territory in December quarter: Icra Ratings

India's GDP is set to revert to the growth territory in the October-December 2020 period compared to the year-ago period, the ratings agency said

After two consecutive quarters of contraction, India's GDP is set to revert to the growth territory in the October-December 2020 period compared to the year-ago period, according to a report.

Private consumption and government spending will help the economy post a turnaround during the December quarter and the GDP will grow 0.7 per cent, Icra Ratings said in a report on Tuesday.

The economy contracted almost by a fourth in the June quarter and by 7.5 per cent in the September quarter in the current fiscal. Even as a recovery is underway, official estimates peg the FY21 contraction at 7.7 per cent.

It can be noted that the economic growth has been on a downward spiral for over three years till it went into a contraction mode.

"The forecasted growth in Q3 FY21 while undoubtedly mild and uneven is nevertheless welcome as it signifies that the economy has exited the COVID-19 pandemic-induced recession after two tumultuous quarters," the rating agency said.

Its principal economist Aditi Nayar said the revival in central government spending supported the Indian economy's exit from the recession in Q3 FY21 and pointed out that after a decline of 14.2 per cent in Q2FY21, the Government of India's (GoI's) non-interest revenue expenditure rose by 22.9 per cent in Q3 FY21.

She said almost all the non-agricultural lead indicators tracked by the agency recorded a continued, albeit uneven, improvement in volume terms in the December quarter on continued unlocking of the economy, uptick in consumption during the festive season, and central government spending.

According to Nayar, most of the tracked indicators rebounded to a growth on a year on year basis in the December quarter although this was on the low base of Q3 FY20, and that aviation was among the outlier which continued to contract.

The agency said the Index of Industrial Production recorded a "sedate 1.0 per cent rise" for the same quarter while rising raw material prices contributed to lower margins in some sectors.

However, the profitability for a large portion of the formal listed space remained healthy, benefitting from the cost-cutting measures that had been undertaken at the peak of the pandemic as well as rising volumes.

Further, Nayar said the formal part of the Indian economy has shrugged off the pandemic blues and is gaining traction at the cost of the smaller and less formal segment, which is hastening the process of the formalisation and also contributing to a consolidation in favour of the larger players.

In what the agency termed as a "sobering note", it said the January 2021 round of the Reserve Bank of India's Consumer Confidence Survey of respondents in 13 major cities indicated only a modest pickup in consumer sentiments which it called as an outcome of the weaker recovery in the informal and contact-intensive sectors.