India’s economy may have contracted at a slower pace in the September quarter compared with the preceding three-month period, said economists surveyed by ET, pegging it a median 11.95%. They warned that the recovery will be patchy and uncertain though the worst may be over.
They called for a strong fiscal package to boost demand and even suggested monetisation if the bond market could not support a borrowings-funded stimulus. High Covid-19 cases and localised lockdowns to contain the spread are dampening demand, according to most of the respondents in an ET poll of 10 economists.
India’s real gross domestic product (GDP) could have contracted 8-15.6% in the second quarter of FY21, they said. Nominal growth is seen shrinking around 7.5-9.5% in the quarter.
“We can say the worst is behind us,” said Kotak Mahindra Bank economist Upasna Bhardwaj. “While there is a reasonable bounce back with consumer durables, electricity, trade and transport, and some subsectors of manufacturing doing well, the recovery will be patchy, uncertain and uneven.”
India’s economy shrank 23.9% in the June quarter because of the Covid-19 pandemic and the lockdown that followed. The contraction was the most among the big economies.
The country is on course for the first full-year contraction of GDP in over four decades in FY21 even though the economy may do better in the second half. “Stringency of the lockdown has eased since April-May. However, with over 90% of the infection case load built-up since late-June, the reopening process has been uneven, delaying a return to pre-pandemic levels,” said Radhika Rao, economist, DBS Bank, pencilling in 13% contraction in the September quarter.
Much like the April-June quarter, non-agricultural sectors are likely to drive contraction in the second quarter. However, a catch-up in industrial activity and partial restart in construction could see these sectors contracting less steeply than services. Agriculture had grown 3.4% in April-June against 39.3% and 50.3% contraction in manufacturing and construction, respectively.
HDFC Bank expects GDP to contract 10% in Q2 on account of continued supply disruptions and a slowdown in the pace of recovery in July as states re-imposed lockdowns. India has surpassed Brazil to become the country with the second highest number of coronavirus cases after the US. The country’s daily case count had crossed 97,800 on September 16, but has declined since.
High-frequency indicators such as the index of industrial production (IIP), fuel demand, mobility, and e-way bills improved on a monthly basis but are still far below last year’s levels.
Passenger vehicle sales returned to positive territory in August after nine straight months of decline, rising 14.16%. “Manufacturing and some part of services have normalised faster than others. We expect an L-shaped recovery in the near term,” said DK Joshi, chief economist at Crisil. He expects a contraction in the third quarter as well and the year ending with a small positive growth in the fourth quarter.
Most economists called for measures to boost demand and lift employment though they did not expect a fiscal boost from the government. “We expect limited support from government capex spending given the stressed fiscal situation and muted private capex,” said Sakshi Gupta, senior economist at HDFC Bank.