November 27, 2020: With several high- frequency economic gauges showing signs of economic recovery gaining pace, the second quarter gross domestic product (GDP) figure expected on Friday has raised expectations of positive news.
Experts say that manufacturing sector has shown resilience in the quarter. The average contraction in industrial output in the second quarter stood at 5.9% compared with the 35.7% average contraction seen in the April to June period. In fact, factory output, which had seen a 57.3% contraction in April, had gradually come off its trough to show positive growth, though a marginal 0.24%, in September.
Capital goods production, which signals investment activity, also saw a reduced level of average contraction in the July-September period to 13.6% from the 65.34% seen in the preceding three months. Output of consumer durables like cars and household appliances has shown improvement too, with production finally entering the positive zone in September since June 2019.
“There is a greater-than-expected recovery in manufacturing in the second quarter,” said Sachchidanand Shukla, chief economist, Mahindra and Mahindra Ltd. High-frequency data has shown improvement in second quarter which will get reflected in the GDP numbers, said Shukla. He expects GDP to have contracted by about 8% in the July-September period. Some economists expect the contraction to be around 7%. The Reserve Bank of India (RBI) in its 9 October monetary policy statement had projected a 9.8% GDP contraction for the second quarter and a 9.5% contraction in the overall fiscal.
“Cushioned by government spending and rural demand, manufacturing—especially consumer non-durables—and some categories of services, such as passenger vehicles and railway freight, have gradually recovered in Q2,” RBI said in its monetary policy statement.
Goods and services tax (GST) revenue collection, an indication of consumption in the economy, showed a sharp improvement in the second quarter as movement restrictions eased and economic activity improved. Centre and states collected RS 2.69 trillion in GST in the second quarter, 45% more than what was collected in the preceding three months. E-way bills or electronic permits for movement of goods reflecting production and logistics point to a rebound too.
Official data also shows that the average contraction in exports in Q2 was at 5.62%, a sharp uptick over the average contraction of 36.4% seen in April-June period. However, experts pointed out that the services sector still remains a major concern given its difficulty to avoid physical proximity. The sector is expected to influence when growth will turn positive. RBI expects growth to turn positive at 0.5% in the fourth quarter.
Source: live mint
