Crowds of people shop at a weekly market in Kandivali.
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India is expected to experience double-digit expansion in the three months ending in June – but economists warn the data will not paint a full picture of the country’s growth trajectory.
South Asia’s largest economy released fourth quarter GDP data on Monday which showed an expansion of 1.6% compared to the same period a year ago, mainly due to government spending and growth in the manufacturing sector. GDP for the year as a whole is estimated to have contracted by 7.3% compared to growth of 4% the previous year.
Since February, India has grappled with a devastating second wave of coronavirus that accelerated in April and peaked in early May. The infection has forced most industrial states in India to implement localized lockdown measures to slow the spread of the virus.
“With the bottlenecks that exist, we think the economy will tend to slow down in the future,” Madan Sabnavis, chief economist at Care Ratings, said on CNBC’s “Street Signs Asia” on Tuesday.
“The numbers we get for the first quarter of fiscal 2022 – that is, the quarter ending in June – can be very misleading,” he said. India’s fiscal year begins in April and ends in March of the following year.
For the April-June quarter of last year, the economy contracted 23.9% as a multi-month nationwide lockdown hammered the country. Economists argue that while the reported year-on-year figure for the current quarter is likely to show double-digit growth, the high number will be due to the weak base of last year’s negative impression.
“On (a) a sequential basis, we’re going to see a double-digit contraction when we do seasonally adjusted data, but on a year-over-year comparison, you’re going to see strong double-digit growth,” Radhika Rao , an economist with Singapore’s DBS Group, said Tuesday on CNBC’s “Squawk Box Asia”.
“This is because it comes after a 24% drop from the same period last year,” she added.
Still, experts agree that the economic impact of the second wave may not be as severe as that of last year. India has so far avoided another national lockdown, allowing states to implement localized closures instead. Economists agree that the country is generally on track to revive its growth, but at a delayed pace.
The data is expected to show that consumption lost momentum this quarter on a sequential basis due to the second wave as households had to prioritize more of their hospital and medical spending, a explained Rao.
“So domestic demand, which is the main component of growth, won’t look so good. Plus, you have contact-intensive services, most of which have been shut down,” he said. she said, adding :, some states are starting to talk about reopening. But, certainly, it’s a very offbeat and very unpredictable path in terms of unwinding the restrictions. “
Many economists have downgraded their growth forecasts for FY2022 for India. Goldman Sachs, for example, lowered its forecast for full-year real GDP growth from 11.1% to 9.9%.