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GS-3

INDIA EMERGED OUT OF TECHNICAL RECESSION

• The Indian economy has emerged out of technical recession as it grew at 0.4% in the third (October-December) quarter of 2020-21 with improvement in manufacturing, construction and agriculture.
• The Gross Domestic Product (GDP) had contracted by 24.4% and 7.3% in the April-June and July-September quarters, respectively, marking a technical recession in the aftermath of the Covid-19 pandemic.
• A technical recession is when a country faces a continuous decline for two consecutive quarters in the GDP.

Important points:

• For the full fiscal year (2020-21), the National Statistical Office (NSO) has projected a contraction of 8%, higher than the forecasts of the Economic Survey (7.7%) and the Reserve Bank of India (7.5%).
• The real GDP growth estimate for the third quarter (2020-21) is at 0.4%. In the corresponding quarter last year, the economy had grown 3.3%.
• For the April-June quarter (Q1) and July-September (Q2), the contraction numbers were revised from 23.9% to 24.4% and 7.5% to 7.3%, respectively.

Growth Across Major Sectors:

• Industries and Services Sector: With improved performance of manufacturing, electricity and construction, industry recorded a growth rate of 2.6% in the third quarter against the contraction in the first two.
• However, services, with the largest share in GDP at 57%, still remained in the contraction zone with a 0.9% fall year-on-year.
• Financial, real estate and professional services grew 6.6% as against 9.5% contraction in the previous quarter and 5.5% growth in the corresponding period last year.
• Mining, trade, hotels, transport, communication and broadcasting services and public administration services continued to stay in the negative territory in the third quarter registering a contraction of 5.9 %, 7.7%, and 1.5%, respectively.
• India’s eight core sectors recorded a meagre 0.1% rise in output in January 2021, propped up by a 5.1% rise in electricity, 2.7% growth in fertilizers and 2.6% growth in steel production, even as the other five sectors contracted.
• Coal, crude oil, natural gas, refinery products, and cement recorded negative growth in January.
• The eight core industries constitute 40.27% of the Index of Industrial Production.
• Growth in agriculture jumped 3.9% in October-December compared with 3% growth in July-September and 3.4% growth during the corresponding quarter last year.

Reasons:

• The positive momentum seen in investment demand (Gross Fixed Capital Formation – GFCF) as it grew by 2.6% in the third quarter after being in doldrums for several quarters now.
• It is essentially net investment. It is a component of the Expenditure method of calculating GDP.
• This is the result of unrelenting efforts of the government to go all-out to revive investments under the ambit of the various measures which formed a part of the AtmaNirbhar Bharat package.
• Going forward, the growth stimuli available from the Union Budget 2021- 22 and the additional measures including the Production-Linked Incentive (PLI) will lead to a strong growth path over the recovery horizon.
• Expenditure (GFCE) in Q3 and Centre’s capital expenditure increased year-on-year by 129% in October, 249% in November and 62% in December.
• GFCE is an aggregate transaction amount on a country’s national income accounts representing government expenditure on goods and services that are used for the direct satisfaction of individual needs (individual consumption) or collective needs of members of the community.

V-shaped recovery:

• The Q3 GDP numbers showed the success of the government’s initial policy of “lives over livelihood”.
• “The sharp V- shaped recovery has been driven by rebounds in both Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF) as a combination of astute handling of the lockdown and a calibrated fiscal stimulus.
• It is defined as the expenditure incurred by the resident households and non-profit institutions serving households (NPISH) on final consumption of goods and services, whether made within or outside the economic territory.

.SOURCE:MINT, THE ECOMOMIC TIMES