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India’s economy back on growth path after shrinking for two quarters

India's GDP back on growth track

India’s economy has come back on the growth path with a 0.4 per cent expansion in the October-December quarter after contracting for two consecutive quarters due to lockdowns that were put in place to fight the coronavirus pandemic.

The farm sector recorded a growth of 3.9 per cent during the quarter while the key manufacturing sector grew 1.6 per cent giving rise to hopes of an early recovery with the government going ahead with a strong vaccination drive to contain the Covid monster.

An improvement in overall demand, a sharp revival in rural economic activities besides a huge boost in confidence have pushed up India’s GDP growth back into positive territory.

Analysts said that the jump from a contraction of 7.5 per cent in the July-Sept quarter to return to a positive growth zone reflects a shift in the sentiments of consumers as well as investors.

“This was on expected lines. The dip was temporary. This country is very different from what the world thinks it to be and the quick return to growth territory goes on to show that people are now willing to spend the money that they earn,” Deepak Sood, secretary general, Assocham told India Narrative.

A timely stimulus package coupled with a good monsoon and the roll out of several economic reform measures helped the Indian economy to recover from the 23.9 per cent shrinkage in GDP growth in the first quarter (April-June). The second quarter was relatively better since the contraction was 7.5 per cent as economic activity had started picking up after the devastating lockdowns.

“Several reform measures have been announced along with the stimulus package to boost growth, the effects of these measures take time to show. The benefits would be visible in the coming months and this will go a long way in helping India realise its true growth potential,” Narendra Taneja, BJP’s national spokesperson and economist said.

CII director general Chandrajit Banerjee said that “recouping of GDP to the positive territory by posting a growth of 0.4% in the third quarter is a promising sign as it portends the end of the pandemic-induced recessionary phase seen in the first-half of the year. One of highlights of the data is the positive momentum seen in investment demand as it grew by 2.6% in the third quarter after being in the doldrums for several quarters now.

The government has announced strong fiscal steps to support the economy in the new budget and decided to boldly spend its way out of the economic crisis despite a higher fiscal deficit which is expected to boost growth ahead.

The RBI has also been lending a helping hand as it cut the repo rate by a total of 1.15 per cent since March 2020 so that credit is available at lower rates of interest to corporates and consumers. As part of this soft money policy it left the repo rate unchanged at 4% earlier this month despite higher inflation so that growth does not suffer.

Meanwhile, the International Monetary Fund in its World Economic Outlook released recently pegged India’s growth rate at 11.5 per cent in 2021 and 6.8 per cent in 2022. This would make India the fastest growing economy in the world in the aftermath of the Covid-19 pandemic.

However, some economists are of the view that a recent rise in crude oil prices and a surge of Covid-19 cases in some parts of the country may pose a risk to the initial recovery.