Figures for the second quarter of Financial Year 2020-21 (FY20) released by the Ministry of Finance make it is more than evident that the doomsday predictions being given out for the Indian economy can take a backseat now. With a sharp rebound in the economic activity post the unlocking of the economy and the success in managing the COVID crisis. Also, early signs of the success of Aatmanirbhar Bharat are also visible on the ground.
Sharp Economic Recovery – Contraction Numbers Reduced to Single Digits
Gross Domestic Product (GDP) for Q2 of FY20 contracted by (-) 7.5 per cent, much smaller when compared to the contraction of (-) 23.9 percent reported for Q1 of FY20. Contributing factors evident in it were the reviving private consumption expenditure [(-)11.3% in Q2 vs (-)26.6% in Q1] and improvement in Gross Fixed Capital Formation (29% of GDP in Q2 as compared to 22.3% in Q1). A shining sector for the economy has been the sustained momentum of agriculture – it reported a growth of 3.4% in Q2, the same as in Q1.
What really catches the attention however is the growth in the secondary sector and the arrested growth in the tertiary sectors of the economy. Manufacturing has grown by 0.6% in Q2 as compared to a contraction of (-) 39.3% in Q1. Construction also saw a much smaller contraction at 8.6% as compared to 50.3% in Q1, while services sector has seen a much smaller contraction at (-)11.4% in Q2 as compared (-)20.6% in Q1.
High Frequency Indicators Speak For Themselves
While many people had initially expressed scepticism around the Aatmanirbhar Bharat package laid out by the Narendra Modi government to combat the COVID crisis and beyond, the emerging numbers across various sectors validate the confidence expressed and the support offered by the government to them by showing strong performance. Growth in manufacturing for instance is the highest in a decade, indicative of the animal spirits of the economy being finally unleashed by the efforts of the Modi government and the resilience of the Indian manufacturing sector. A few noteworthy things stand testament to this:
- Manufacturing Purchasing Managers’ Index (PMI) rose from 56.8 in September to 58.9 in October, 2020, registering the highest figure in over a decade.
- PMI Services index also rose to 54.1 in October, ending the seven-month sequence of contraction, signalling improved market conditions.
- Power consumption clocked double digit YoY growth of 12.1 per cent in October and 4.5 per cent in the first 24 days of November, reflecting a post-recovery rebound and even in growth economic activity across all spheres – agriculture, industry and services.
- Passenger vehicle sales reported 2 per cent growth in October 2020, while total domestic sales of two-wheelers increased 16.8 per cent, auguring well for consumption demand.
- Domestic tractor sales posted a 7 per cent YoY growth in October, auguring well for rural demand and signaling an early indicator of the transformation arising from agricultural reforms introduced under Aatmanirbhar Bharat package.
- E-way bills generated witnessed a double-digit YoY growth of 21.4 per cent in October, reaching an all-time high of 641 lakh, and 7 per cent in the first 23 days of November.
- GST collections swelled to eight-month high at ₹1.05 lakh crore in October – crossing ₹1 lakh crore after February, 2020 – registering a positive year on year growth of 10.2 percent.
- Railway freight grew YoY at 15.4 per cent in October and 13.6 per cent in the first 10 days of November. Also, gross revenue from railway passenger bookings stood at ₹533.27 crore in the first ten days of November, reaching 8 per cent of October levels.
- Cargo traffic volumes in October have reached 7 per cent of previous year levels, registering a 1.23 per cent YoY growth.
- Domestic aviation passengers increased from 2.8 lakh in May to 28.32 lakh in August and 39.43 lakh in September and 52.71 lakh in October.
- Under MGNREGA, 252.4 crore person days of work have been created during April to October of FY 2021 as against 159.7 crore person days in the corresponding period of previous year.
The World Acknowledges India’s Recovery, Trust the Indian Economic Story
An important factor that must be pointed out is that the patterns being observed in the Indian economy mimic the global economic scenario barring China. The GDP figures for Q2 have been respectable, and show the resilience inbuilt in the economy which was rearing to go once the lockdown would be lifted as seen in several countries, especially across the G20 segment.
Table: GDP Growth (%) Across Prominent G20 Economies
|Country||Q1 of 2020-21||Q2 of 2020-21|
Owing to the unexpected momentum in High Frequency Indicators, a few agencies in November have improved their GDP growth forecast for India for FY 2020-21. Most project a contraction of less than 10% for FY 2020-21. Goldman Sachs revised its contraction figures from (-)14.8% to (-)8.9 %, while Morgan Stanley has projected a contraction of only (-)5.7% for FY20. Further, the global investor community has reposed its faith in the Indian economic story as reflected in the Foreign Direct Investment (FDI) flowing into the economy. During April-September, 2020, total FDI inflow stood at a record high of US$ 39.93 billion, 10.8 per cent higher as compared to first six months of 2019-20.