India Q2 GDP Preview: Inching Back Towards Normalcy

Easing of localised lockdowns, government spending support and a favorable base will impact Q2 GDP growth.

<div class="paragraphs"><p>Workers labour at the construction of a dedicated Covid Heath Centre at the Bandra Kurla Complex exhibition ground in Mumbai, India.</p></div>
Workers labour at the construction of a dedicated Covid Heath Centre at the Bandra Kurla Complex exhibition ground in Mumbai, India.

The Indian economy inched back towards normalcy in the quarter ended September as states lifted localised lockdowns and economic activity picked up.

India's gross domestic product grew 8.1% in the second quarter, data due on Nov. 30 is expected to show. This is according to the median estimate of 14 economists polled by Bloomberg. The RBI has forecast the second quarter GDP growth at 7.9%.

Gross value added is expected to rise by 7.4%.

In the first quarter, GDP rose 20.1% while GVA grew 18.8%. The Indian economy had contracted in the first and second quarter of the previous financial year, which makes growth rates look better in the current year.

Economic activity gathered pace in the second quarter supported by pent-up demand, a pickup in vaccinations and easing second-wave related restrictions, said Abheek Barua, chief economist at HDFC Bank Ltd. Barua expects GDP to grow by 7.8%, while GVA is estimated to rise 7.3%.

On a sequential basis, GDP is expected to rise by 9.75% in Q2 compared to a contraction of 16.9% in Q1.
Abheek Barua, Chief Economist, HDFC Bank

Suman Chowdhury, chief analytical officer at Acuite Ratings, estimates India’s GDP and GVA to grow 8.5% and 7.5%, respectively, in the second quarter. Support from a favourable base, a gradual easing of lockdown, progress in vaccination and improved consumer sentiment supported the economy. Buoyancy in exports and improved government capital expenditure also helped, he said.

Key Components of GDP

A patchy monsoon and uneven distribution of rainfall could weigh on farm output and rural demand could be weaker than last year, said Rahul Bajoria, chief economist at Barclays. He estimates farm output to rise 3% in the quarter ended September compared with 4.5% in the previous quarter.

Radhika Rao, economist at DBS Bank, also pegs agriculture growth at 3% for the quarter, citing a moderation in real farm and non-farm wages during the quarter.

Mining output is expected to reach pre-Covid levels and is estimated to rise by 13% in the quarter, according to Bajoria's estimates.

Industry is estimated to grow at 8.5%, according to Rao. The year-on-year growth will look lower than the first quarter due to the base effect. Sequentially industrial output will show repair but slowly. Notwithstanding a stronger global capex push and higher public sector participation at home, industrial activity faced temporary supply disruptions in a few sectors, owing to chip shortages, logistical bottlenecks, and coal shortages, Rao said.

Within industry, the manufacturing sector is seen growing by 9%, Bajoria said. Supply shortages could weigh on output in sectors such as automobiles, he cautioned.

Services is estimated to grow at 7.9%, according to Rao. Resumption in contact intensive services after a prolonged hiatus is also likely to reflect in higher wholesale and retail trade, Rao said.

On the expenditure side, Deutsche Bank is forecasting 10.5% growth in real private consumption during the July-September quarter. In the corresponding quarter of the previous year, private consumption had contracted 11.2%.

Investments growth will likely rebound by 10.5% and government consumption expenditure will rise 10% over a year ago, estimated Kaushik Das, chief economist at Deutsche Bank.

Upside To Full-Year Growth

The pickup in economic activity in the second quarter, along with a festive boost likely in the third quarter could bring upside to growth for the full financial year.

Soumya Kanti Ghosh, group chief economic advisor at State Bank of India, has revised his GDP growth for the full year to 9.3%-9.6% from an earlier estimate of 8.5-9.0%. "With this, the real GDP will be around Rs 2.4 lakh crore more than the FY20 real GDP of Rs 145.69 lakh crore," he said.

The RBI has pegged full-year GDP growth at 9.5%.

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