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INSTANT VIEW 4- India's economic growth picks up to 1.6% y/y in Jan-March quarter

BENGALURU, May 31 (Reuters) - India’s economic growth picked up to 1.6% year-on-year in the January-March quarter, official data showed on Monday, before a harsh second wave of COVID-19 hit the country last month.

The read-out for the March quarter was faster than the 1.0% growth forecast of analysts in a Reuters poll and upwardly revised 0.5% growth rate for the previous quarter.

COMMENTARY

RADHIKA RAO, ECONOMIST, DBS BANK, SINGAPORE

“Trend for the first quarter of 2021, whilst encouraging, is backward looking, in light of the resurgence in the pandemic from March to early-May. Cases have tapered off in recent weeks, however, in contrast to last year, the unlocking process won’t be linear, as states exercise more discretion, making the unwinding in restrictions more staggered and less predictable.”

“Whilst awaiting a vaccination pivot, normalisation in activity is likely to be more gradual and more evident in sequential terms as base effects prop annual comparisons.”

“We maintain our FY22 growth projection at 9.5% y/y from a revised -7.3% in FY21.”

KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU

“The impact of the massive second wave would likely blunt the growth momentum, though extremely low base effect would still result in higher growth. We stick to our FY22 real GDP forecast of 8.5% y/y unless the just released FY21 real GDP data too is revised down as has happened with the prior period data on the last two occasions.”

ANUBHUTI SAHAY, HEAD OF SOUTH ASIA ECONOMIC RESEARCH, STANDARD CHARTERED BANK, MUMBAI

“The GDP number is in line with expectations though a better-than-expected GVA (Gross Value Added) shows that recovery was much better-than-expected. While next few months are likely to see subdued economic activity, today’s data underlines that recovery is likely to be strong once a sizeable population is vaccinated.”

SAKSHI GUPTA, SENIOR ECONOMIST, HDFC BANK, GURUGRAM

“Looking forward, while the y/y numbers for the first quarter might look upbeat due to a low base, the sequential growth is likely to contract. In particular, with the spread of the virus more acute in rural areas in this wave, rural demand and sectors dependent on the rural economy might come under stress.”

“With a more muted rural support this year, along with ongoing supply disruptions, we expect GDP growth at 8-10% for FY22, revised down from our earlier estimate of 11.5%.”

SHASHANK MENDIRATTA, ECONOMIST, IBM, NEW DELHI

“Growth fared slightly better than expected in Q4FY21. The positive surprise has been driven by the construction and manufacturing sectors. Owing to its contact-intensive nature, the service sector, however, remained a laggard. On the demand side, the key takeaway is that private consumption expenditure returned to growth during the quarter.”

“The renewed jump in COVID-19 infections in April and May and the concomitant lockdowns are likely to dampen this recovery and hold back growth impulses. Continued policy support, therefore, remains important.”

“Overall, the latest GDP data provides confidence that once the ongoing restrictions are eased, recovery can materialize gradually.”

YUVIKA SINGHAL, ECONOMIST, QUANTECO RESEARCH, DELHI

“Headline GVA, for both Q4 and FY21, has conformed to our expectations broadly, depicting the strong momentum in economic activity in the quarter which saw low infections and near complete opening up of activities. GDP, however, has come in better versus our estimates, which were premised on a wider GVA-GDP divergence built in owing to the one-time adjustment of food subsidies.”

“Amidst the health crisis that still persists, we expect RBI (Reserve Bank of India) to continue to lean towards supporting growth, by retaining its accommodative stance and status quo on rates at its meeting later this week. It could, however, reduce its FY22 growth estimate by 0.5%-1.0%. Our growth estimate for FY22 is pegged at 10%.”

GARIMA KAPOOR, ECONOMIST - INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI

“The Q4FY21 GDP growth of 1.6% reflects the full impact of unlocking of the economy post COVID-19 shock (of first wave). While the second wave of infections has been much more severe, the absence of a stringent nationwide lockdown has been a positive.”

“The impact during the second wave has been more pronounced on consumer sentiment and mobility rather than economic activity. The rebound in consumer spending would hence be more gradual than the first wave with vaccination being the key driver. We expect FY22 GDP growth at 10.5% versus our earlier estimate of 12.5%.”

MADHAVI ARORA, LEAD ECONOMIST, EMKAY GLOBAL FINANCIAL SERVICES, MUMBAI

“The better-then-expected growth print partly owes it to healthy corporate results in March quarter of FY21. We admit the situation is still in a flux, and it is too nascent to gauge the true impact of the second wave on macro variables. We believe that the impact is unlikely to be of the same magnitude as last year.”

“Clearly, factors such as better-adapted firms and policy response, stable financial conditions and robust global growth spillovers create growth buffers back home. However, credible vaccine drive remains key. The faster the vaccine traction, the faster would be the delinking between mobility and virus proliferation.”

DEEPTHI MATHEW, ECONOMIST, GEOJIT FINANCIAL SERVICES, KOCHI

“(India’s) GDP registered a growth rate of 1.6% in Q4FY21, supported mainly by government expenditure. Government final consumption expenditure (GFCE) registered a growth rate of 28%, whereas private final consumption expenditure registered a growth rate of 2.6%.”

“The impact of the second wave of the pandemic could be seen in the GDP figures for Q1FY22 as most of the states enforced lockdowns and other restrictions from April onwards.”

GAURAV GARG, HEAD OF RESEARCH, CAPITALVIA GLOBAL RESEARCH, INDORE

“GDP for Q4 has shown an increase of 1.6%, which is in line with expectations. The biggest hit is taken by trade, hotels, transport, communication and services related to broadcasting where there is a contraction of 18.2% y/y. This is followed by the construction sector, which has degrown by 8.6%.”

“Private consumption in FY21 has reduced by around 3 trillion rupees ($41.37 billion) as compared to FY20. However, we believe that private consumption will take a big hit in Q1FY22 because of the second COVID wave and resultant loss of income for a large group of people.”

ADITI NAYAR, CHIEF ECONOMIST, ICRA, GURUGRAM

“The data provides mixed cues regarding the extent of improvement in economic growth in Q4 FY2021. While the GVA expansion rose sharply to 3.7%, exceeding our 3% forecast, GDP growth improved more modestly to 1.6%, and trailed our expectation of a 2% y/y rise. The improvement in the GVA growth was driven by a volume-driven surge in industry and a rather modest turnaround in services.”

“The pickup in GDP growth, while broad-based, was boosted by a spike in government spending reflecting the back-ended expenditure by the government of India, an improvement in investment activity as well as a mild turnaround in private consumption. As expected, net exports reported a deeper drag on the GDP, and we expect the current account deficit would have enlarged in Q4 FY2021.”

$1 = 72.5180 Indian rupees Reporting by Nivedita Bhattacharjee, Anuron Kumar Mitra, Rama Venkat, Nallur Sethuraman and Shivani Singh in Bengaluru, and Swati Bhat in Mumbai; Editing by Devika Syamnath and Sriraj Kalluvila

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