InvestorQ : What were the key highlights of the GDP for Dec-20 announced by the government on 26 Feb?
Anjana Aiyar made post

What were the key highlights of the GDP for Dec-20 announced by the government on 26 Feb?

Khushi Patel answered.
1 year ago

Here are some of the key highlights of the GDP number announced for the quarter ended Dec-20.

· India’s GDP finally returned to growth although of a small 0.4% for the Dec-20 quarter. This comes after the GDP contracted by -23.9% in the Jun-20 quarter and by -7.5% in the Sep-20 quarter.

· However, the National Statistical Office of NSO has downsized the GDP estimate for the full year FY21 to -8% from -7.7%. This is largely on account of anticipated pressure in manufacturing and services.

· After the sharp meltdown in the previous two quarters, the positive growth in Dec-20 quarter is an indication of a V-shaped recovery, although we may need few mor quarters of ratification to arrive at a conclusion.

· Incidentally, the NSO has estimated the GDP to fall by -1.1% in the Mar-21 quarter, despite the temporary respite in the third quarter. This presupposes 30% growth in government spending or else the number could actually be worse than that.

· Consumer spending, the driving force behind India’s economy, fell 2.4% in Dec-20 quarter. This is worrying because consumer spending accounts for 60% of GDP. However, the good news is that gross fixed capital formation is 2.6% in Q3.

· Needless to say, this revival in gross capital formation was driven by central government capex growing by 129% in October, 249% in November and 62% in December 2020. The downstream effect of this capex can be expected in coming quarters.

· Services sector, which is the bulk of GDP at over 60%, continued to be a mixed bag. Some segments of services like construction, realty and financial services saw a bounce. However, activities like hotels, tourism, trade were all hit by the lag effects of COVID.

· In services, the GVA in financial services and real estate clocked 6.6% growth in Q3. At the same time, construction saw GVA growing 6.2% in the quarter. Gross value added or GVA is the GDP adjusted for the impact of indirect taxes and subsidies.

· The growth in construction is a major positive because it is one of the biggest job providers in India’s economy and also has a multiplier effect. Its revival is crucial for bringing back livelihoods for those worst-affected by the pandemic.

· The NSO’s second advance estimate indicate that nominal GDP will fall 3.8% in FY21. The NSO also has assumed high inflation in the second half of FY21. While the GDP deflator in the FAE stood at 3.5% it rose to 4.2% in the second advanced estimates. This resulted in the total GDP contraction for the full year at -8%.