The Union finance ministry on Friday said the economic growth of 0.4 per cent in the third quarter of the current financial year has returned the economy to the pre-pandemic times of growth.
However, the economy grew by a much higher rate of 3.1 per cent in the fourth quarter of 2019-20.
The ministry said in a statement that the initial policy choice of “lives over livelihoods” succeeded by “lives as well as livelihoods” is now bearing positive results, converging with the foresight the government had about an imminent V-shaped recovery, when it entered the war with the pandemic on the 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,” it said.
While GFCF has improved from a contraction of 46.4 per cent in Q1 to a 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.
Apart from the overall uptick in the economy, the resurgence of GFCF in Q3 was also triggered by capex by the Centre that increased year-on-year by 129 per cent in October, 249 per cent in November, and 62 per cent in December.
The fiscal multipliers associated with capex are at least 3-4 times larger than government final consumption expenditure (GFCE) as the former induces much higher consumption spending than normal income transfers.
However, GFCE has played a critical role since April as it provided the initial stimulus to the economy, the ministry said.
Significant recovery in manufacturing and construction augurs well for the support these sectors are expected to provide to growth in FY22.
The ministry cautioned that the country is not yet out of danger. “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,” it said.