FY21 GDP Performance may Beat Estimates, says Finance Ministry

Economic activity in India has gathered pace and the financial year could end better than projected in the second advance estimates of gross domestic product (GDP) released last month, the finance ministry said in its monthly review of the economy. The mild rise in Covid cases has not dented the steady uptick in consumer sentiment, which has been bolstered by the inoculation drive, the ministry noted in its February review.

"Positive GDP growth in Q3 of FY 21 - for the first time since the onset of the pandemic - adds to the positive sentiment as the economy is set to close the year with activity levels higher than measured in the second advance estimates of GDP," the review said. There is further strengthening of the "V-shaped recovery" that began in the second quarter, it noted.

The Central Statistics Office has estimated an 8% contraction in GDP in FY21. Based on GDP data for the first nine months, this would mean a 1.1% contraction in the current quarter of the fiscal year.

"GDP growth is expected to be in positive territory in the second half of 2020-21, on the back of higher government expenditure, moderated contraction in private consumption and net exports emerging out of dismal retrenchment," the report said.

GST revenue mop-up on the rise

It noted that the Covid vaccine rollout has improved sentiment.

India's daily inoculations crossed the 1 million mark for the first time on Thursday. Daily Covid-19 cases have, however, risen over the past 30 days.

"In India, economic activity is gathering a healthy pace with a sustained flattening of Covid-19 curve, prompt rollout of Covid-19 vaccine and a steady uptick in consumer sentiment," said the report by the Department of Economic Affairs.

Signs of pickup

The Reserve Bank of India (RBI) industrial outlook survey (IOS) conducted in the third quarter of FY21 has also reaffirmed this optimism, the report noted. There was an expansion of services activity since the beginning of 2021 as people overcame fear of the pandemic, though this risked increasing the infection rate.

"The pick-up in construction activity, with its wide array of backward and forward linkages, is slowly developing into a critical growth lever of the economy," the report said, adding agriculture continues to show robust growth. The rise in imports between December 2020 and February 2021 points to strengthening demand.

Sustained momentum in GST revenue collection - a 7% rise in February to Rs 1.13 lakh crore -suggests business and trading was growing even beyond the festival season.

There were apprehensions consumer demand would wane after the festival season.

While surplus systemic liquidity will nurture this growth, the finance ministry said bank credit is only just beginning to pick up and is mainly directed at micro, small and medium enterprises (MSMEs).

Credit to large industries continues to be in negative territory as they are using alternate funding sourced from bonds, debentures and other market-based instruments. Indian companies made debt issuances worth? 1.3 lakh crore, 29% higher than in the previous quarter, the report said.

Pandemic risk

Pandemic-induced morbidity and fatality remain the biggest risk to recovery, the review said. "Rapid production and deployment of Covid-19 vaccination will be critical to taking forward the health stimulus deep into FY 22," it said.