The Q3FY21 GDP numbers were awaited with great eagerness as we all wanted to know whether this was a ‘V’ shaped recovery.
The Q3FY21 GDP came in at 0.4%, maybe much lower than what many expected. But the fact is, it did come in the positive and that in itself is good news. So, we can say that the ‘V” is slowly but surely forming. Till the services sector, led by trade, hotel, transport and communication does not get back on track, which might not happen for the next 2-3 quarters, the GDP will remain subdued but back on the expansionary mode.
The good festive demand, the optimistic mop-up from GST, fantastic earnings reported by India Inc, swelling kitty on account of taxes on fuel is probably what we are seeing in this Q3 GDP – it could have been higher but for the contraction in Govt expenditure.
So, one hand, there is trade, hotel, transport and communication down (-)7.7% but construction is up by a big 6.2% and public admin and defence contracted (-)1.5%. Manufacturing grew 1.6%, which is one looks at the Q3 earnings, one of the strongest in a long time, makes one wonder. In some ways, we feel the numbers are all over the place, not giving us really a clearer picture.
This could be on account of the bipolar India in which we live – the organized sector has bounced back but clearly, the large unorganised sector, dominated by many contact-oriented services, is yet to come out-of-the-woods. The GDP is probably showing us the true picture – the economists want us to believe that India is doing very well, based on what the stock market also wants us to believe but the ground reality is that the claw back will be very painful and will take time.
Q1 was the most devastating quarter in the last 40-years when the GDP fell to a (-)23.9% due to the lockdown. In Q2, slowly things were starting to open up and that was reflected in the contraction but a lower contraction at (-)7.5%. And in Q3, almost all over the country, things were slowly limping back to normalcy and that reflected in the numbers – ‘slow’ is the key word here.
In Q2, it was the lowering of Govt expenditure and not backed up by the private sector which slowed down the pace of recovery – ditto in Q3 too. Government Final Consumption Expenditure (GFCE), was at 16.4% in Q1 and it actually contracted 22.2% in Q2. This in Q3 was at (-)1.1%. This is also a bit puzzling as we all know that the Govt been going all out spending money to help get the economy on track. Private Final Consumption was also not encouraging at (-)2.4% v/s (-)11.3% (QoQ).
The strength of economic recovery in Q3 now sets the pace for growth in Q4 and in FY22 – and based on what we see today, it’s going to be gradual but most certainly upwards.
For now, lets just revel over the fact that we have ploughed back the country into the positive growth territory. During these pandemic times, even one good news is good ….