India reverts to growth mode in fiscal Q3, full-year GDP to shrink 8%

SINGAPORE (ICIS)–India’s economy returned to growth mode in October-December 2020, after two quarters of pandemic-induced deep recession, raising hopes of a strong recovery in the coming fiscal year.

The country’s economic output in the December quarter inched up by 0.4% year on year, reversing the 7.3% contraction in the previous quarter, official data showed.

“Encouragingly, growth was not limited to manufacturing, with services growing at a stronger pace,” said Priyanka Kishore, head of India and southeast Asia Economics at research firm Oxford Economics, in a note.

A prolonged lockdown amid the raging coronavirus pandemic in the March quarter caused India to record its steepest annualised contraction on record at 24.4%.

For the current fiscal year ending March 2021, the government’s forecast GDP contraction for Asia’s emerging market giant was adjusted to 8.0% from 7.7% previously.

“This appears conservative in light of planned government spending in Q1 2021, and we maintain our growth forecast at -7.3%,” Kishore said.

“India’s growth prospects will depend largely on how COVID-19 evolves,” Singapore-based UOB Global Markets & Economic Research economist Barnabas Gan said in a note on 1 March.

As of 28 February, India has the second highest coronavirus cases globally at more than 11m, after the US, according to data from the World Health Organization (WHO).

“Risks surrounding COVID-19 remains high. India’s COVID-19 vaccination has been reportedly slow, with only 1.0% of the population vaccinated at end-February 2021,” Gan said.

UOB is projecting a 5.0% contraction in India’s GDP in the last quarter of its fiscal year ending March 2021, bringing its full-year forecast at -9.0%.

Economic prospects in the coming fiscal year are brighter as coronavirus vaccines are being rolled out globally, which should ease pandemic-induced lockdowns and allow more business activities to resume.

India is looking at a 10% GDP growth in 2021-22 based on a consensus forecast of economists, according to Spain-based research firm FocusEconomics in a report dated 22 February.

Its government plans to boost capital expenditures by 34.5% to rupee (Rs) 5.54tr ($75bn) – which will be spent across projects in the energy, social and commercial infrastructure, communication, water and sanitation sectors – to rev up the economy.

New policies in the automotive and textile industries should spell good news for petrochemicals.

A vehicle scrappage policy for old and unfit vehicles should boost sales of new vehicles, while the textile industry stands to benefit from a reduction in import duties on raw materials caprolactam, nylon chips and nylon fibre & yarn to 5%.

Meanwhile, India is looking at reviewing more than 400 old duty exemptions, and plan to come up with a revised structure that will take effect from 1 October 2021,

“Overall, next year’s budget should add some impetus to economic growth following what will go down as the sharpest economic contraction since its current GDP records began back in 1966,” FocusEconomics said.

Focus article by Pearl Bantillo

($1 = Rs73.4)

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