According to a recent average estimate of 10 economists and experts polled by an Indian media outlet, the country’s economy likely shrank by 10.2% in the July-September 2020 quarter compared to the same quarter in 2019. This compared against the 23.9% decline in growth posted by the Indian economy in the April to June 2020 quarter, due to the coronavirus-related lockdown and is an improvement over the estimate of a 12% decline in a poll conducted in September.
The latest estimates of the contraction ranged from 8% to 13.5% as strong results from the agriculture and manufacturing sectors drove growth, further boosted by favourable government policies, while the services sector posted slower growth on account of continued restrictions and consumer caution. The Indian government is expected to announce second-quarter GDP figures at the end of November
According to ICRA (formerly the Investment Information and Credit Rating Agency of India Limited) growth during the quarter was led by electricity within the industrial sector, followed by mining and manufacturing. ICRA has estimated a contraction of 9 to 10% for the July to September 2020 quarter. Industrial production rose by 0.2% in September, reversing six months of contraction with mining up by 1.4% and electricity growing 4.9%.
In September 2020, India’s Purchasing Managers’ Index (PMI) rose to the highest in eight-and-a-half years, while collections of the goods and services tax (GST) rose to a post-pandemic high of Rs 95,480 crore. The month also saw record e-way bill generation at 57.4 million.
Some economists say that since August, India’s economy has been recovering since the supply constraints that were very debilitating were removed and activity suddenly picked up pace. Pent-up demand combined with a festive season upsurge drove growth toward the end of the July to September quarter.
Goldman Sachs recently announced that it expects India’s economy to shrink by 10.3% in FY21, compared with the contraction of 14.8% it projected in September. While the agriculture sector posted steady growth, floods in many parts of the country caused disruption. Meanwhile, the shortage of migrant labour resulted in patchy recovery in the construction sector and capacity utilization continued to be low.
Most economists seemed to agree that India’s central bank, the Reserve Bank of India (RBI) played its part in terms of providing support through monetary policy during the July to September 2020 quarter, they felt fiscal policy was inadequate. In order to provide a boost to the COVID 19-hit economy, the Indian government has recently announced an Rs 2.65 lakh crore stimulus package – the third in the series.