Girls wearing masks shop in Jaipur. Markets have been busy despite people being wary of catching Covid-19. Photo: AFP / Bhagirath Basnet / The Times Of India

The Indian economy came out of the contraction zone in the third quarter, after two successive quarters of contraction, but experts warn its woes are far from over as it continues to battle Covid-19 pandemic pain.

According to data released by the National Statistics Office, the economy grew 0.4% in the October-December quarter as against the year-ago quarter on the back of a recovery in the manufacturing and construction sectors.

The manufacturing sector recorded growth of 1.6% during the quarter, as against a contraction of 1.5% in the preceding quarter. The construction sector recorded even more sharper growth of 6.2% as against a contraction of 7.2% in the preceding quarter.

Problem areas

However, private final consumption expenditure, which accounts for more than 50% of gross domestic product, contracted 2.4% in the December quarter, despite the festival season. But the government’s massive capital expenditure push from October, as part of its efforts to revive the economy, helped lift gross fixed capital by 2.6% this quarter, as against a contraction of 6.7% in the year-ago period.

One of the worst-hit sectors by the Covid-19 induced economic slowdown, trade, hotels, transport, communications and services continue to remain in negative territory, despite registering a marginal recovery.

Grim forecast

The National Statistics Office has warned that the economy could slip back into contraction in the fourth quarter as a loss of momentum of the economic recovery as well as subsidy payouts in the current quarter could compress gross domestic product numbers. It expects a contraction of 1.1% in the fourth quarter.

For the current fiscal year, the Indian economy is projected to face its largest contraction ever and the National Statistics Office has further lowered its earlier estimates. It now expects the Indian economy to contract by 8% in 2020-21, as against an earlier estimate of 7.7%.

Many economists have made even more grim forecasts. Former chief statistician and noted economist Pronab Sen had projected gross domestic product to contract 10% for the current fiscal year. Noted economist Arun Kumar is even more pessimistic and expects the economy to contract 25%, followed by a slow recovery.

Numbers revised

India’s 68-day-long nationwide lockdown, beginning March 25, to battle the Covid-19 pandemic had a much deeper impact on the first quarter than was earlier stated. According to the revised estimates, the Indian economy saw a contraction of 24.4% in the April-June quarter, as against a de-growth of 23.9%.

On the other hand, the economy fared marginally better than earlier estimated in the July-September quarter. According to the revised gross domestic product numbers, the economy contracted 7.3% in the second quarter, as opposed to 7.5% estimated earlier.

Downward slide

The country’s economic woes predate last year’s Covid-19 disruption. Growth began declining sequentially from January 2018 onward and it was 3.1% in the January-March quarter of the last fiscal year, the slowest growth for a fourth-quarter since FY09. The annual growth last fiscal year was 4.2%, down from 6.1% in the preceding year.