Q3 GDP: India is growing instead of recovering somehow to feeble single digit levels

The GDP growth number for the third quarter at 0.40 percent corresponds to more or less what most of the market participants and analysts had expected. That should bring some relief.

The reason for this is two-fold. First, the growth is in the positive territory—the economy is growing, though at a borderline rate. Two, the days of negative growth, an economy hammered down by the pandemic, are more or less behind us. The movement in the components of the GDP number also tells us some of the areas that are lagging and needs concentrated effort, so that a much higher growth can be realised in the coming quarters.

The economic rebound is the result of continuing improvement in agriculture and industry, which have recorded a growth of 3.90 percent and 2.70 percent, respectively. While mining witnessed a decline of -5.90 percent, the uptick in construction was to the tune of 6.20 percent.

Manufacturing, too, is in the positive territory at 1.60 percent. The improvements in manufacturing and industry are already quite visible in the corporate performance reported in the last two sets of quarterly earnings. While Q2 performance was mainly due to enhanced operational efficiencies, Q3 scaffolded it with gains in the bottomline.

But the very important consumption demand, which is measured by Private Consumption Expenditure, continues to contract, with a decline of 2.40 percent in Q3. The consolation is that the rate of contraction has slowed down from 11.30 percent in Q2. The investment demand, or the Gross Fixed Capital Formation, reflects a capital formation, which is turning positive after a declining spell of over one year with a 2.60 percent growth. This is a crucial indicator of investment demand, and what is important is sustaining this momentum.

The section under the head, public administration, and other services, which stands for government spending, shows a decline of 1.5 percent, mainly due to the weak growth in other services.

It is interesting to look at the latest core sector numbers, which showed a growth of 0.10 percent in the eight infrastructure sectors, which actually slowed from 0.2 percent in December 2020. The core sector represents 40 percent of the IIP and it is quite a weak number when read along with the GDP numbers, as futuristic indicators of economic activity. A contraction was seen in crude oil, natural gas, refinery products and cement in January. Coal output, too, fell into the degrowth territory, while steel and electricity output expanded.

The generally encouraging picture may be rendered dull by some factors, which are relevant at this juncture, which we need to be cautious about. The second wave of the pandemic is still to establish its foot, but the number of cases is gradually rising.

The first wave was effectively dealt with. Therefore, the efficacy with which the second wave is contained is equally important. There have been many localised shutdowns in some cities and states, and this may have an impact on the level of overall economic activity in the coming days.

Certain activities have been partially or completely closed down like educational institutions, hotels and restaurants, cinema halls, etc. We need them back before long because these are some of the productive activities that employ a large number of people.

The saving grace is that we already have appropriate fiscal and monetary policies, which have helped the economy sail through one of the most tempestuous times. The complete opening up of trade and transport, hospitality services and further impetus to consumption and investment are required to sustain the momentum.

For real growth, it is not enough that we recover somehow to feeble single- digit levels, we need much more than that to say that we are really growing.

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