InvestorQ : What are the challenges you see to GDP growth in the next two quarters and for the full year?
Debbie Mascarenhas made post

What are the challenges you see to GDP growth in the next two quarters and for the full year?

Arti Chavan answered.
3 years ago

Even as there has been some positive news on the agriculture, manufacturing and the power generation space, the services sector or the tertiary sector is still in the doldrums. Remember that the tertiary sector accounts for over 60% of the GDP and that portion continues to be tepid.

That is the reason GDP growth is still in the negative and that is also the biggest challenge going ahead. For example, Trade and hotels have shown a bounce but the problems are structural in nature as the structural slowdown is created by the lockdown and the lag effect.

Public services have taken a big hit as the rising fiscal deficit has put pressure on government spending in social welfare. That is only likely to get further stressed as the fiscal deficit is already at 120% of full year target in first 7 months. Even financial services saw worsening in Q2 compared to Q1 as lending is yet to pick up.

Although construction is picking up, the question is whether it can sustain the momentum in the coming quarters. That is why the real test will be in the Q3 and Q4 quarters as the euphoria and bounce after the crash is done and dusted.

The -7.5% contraction triggered hopes that the economy could turn to positive growth in the current fiscal itself, probably in the third or fourth quarter. The full year GDP may still be in the negative. High frequency data like core sector, PMI and IIP for next few months will hold the key to this view.

The last quarter has seen a V-shaped recovery in the economy. There could be breaks ahead. Trade is still way below pre-COVID levels and consumer demand continues to be elusive at the grass-root level. All these could really challenge the GDP revival in any big way in the Q3 and Q4 quarters.