Indian growth jumps in April-June

01 Sep, 2021

NEW DELHI: India's economy rebounded in the April-June quarter even while a devastating second wave of COVID-19 swept the country, with growth of over 20% compared to a year earlier driven by a surge in manufacturing and higher consumer spending.

The expansion nevertheless fell short of the 21.4% predicted by the central bank, which some analysts said would make the Reserve Bank of India (RBI) more likely to retain its accommodative stance until at least year-end.

Gross domestic product expanded 20.1% in April-June, the first quarter of India's fiscal year, compared with the same period a year earlier, driven mainly by manufacturing and construction, the statistics ministry said on Tuesday.

That was in line with a Reuters poll forecast of 20.0% and compared with a record contraction of 24.4% in the same quarter of 2020.

The period included April-May's second wave of the coronavirus pandemic but activity was less affected than during last year's initial spread because lockdown measures adopted were less stringent.

The Indian economy, Asia's third-largest, shrank 7.3% in 2020/21, putting it among major economies hit worst by the COVID-19 crisis.

The government's chief economic adviser K.V. Subramanian said private investments and consumer spending were driving a V-shaped recovery, and that the economy was well placed to deal with the impacts of any move by the U.S. Federal Reserve to tighten liquidity.

"India is poised for stronger growth," he said, citing government reforms and the easing of inflationary pressures while cautioning that certain services were still not seeing "green shoots".

While advanced economies have provided massive stimulus to support consumption, Prime Minister Narendra Modi has opted to raise infrastructure spending and pursue privatisation of state companies and tax reforms to bolster India's growth prospects, while providing free foodgrains to the poor.

The RBI https://www.reuters.com/world/india/india-keeps-rates-hold-expected-market-eyes-clues-policy-normalisation-2021-08-06, which has kept its monetary policy loose, has forecast annual growth of 9.5% in the current fiscal year while warning about the possibility of a third pandemic wave.

Consumer spending, the main driver of the economy, rose 19.34% year-on-year in April-June from a year ago, but remained lower than its pre-pandemic level.

Investment rose 55.3% compared with growth of 10.9% in the previous quarter, while state spending contracted 5% after growing 28.3% in January-March, Tuesday's data showed.

Annual growth of 49.6% in manufacturing in April-June was a leap from 6.9% in the previous quarter and showed new anti-COVID-19 curbs had only a limited impact on activity.

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