NEW DELHI: The contraction of the Indian economy eased off in the three months to September amid signs of a pick up in manufacturing, and economists expect a steady recovery next year if progress on coronavirus vaccines feeds consumer demand.
Prime Minister Narendra Modi, whose party won elections this month in the eastern state of Bihar, expects the recent easing of farm and labour laws, along with tax incentives, to bolster manufacturing and lure more foreign investment.
India’s gross domestic product in July-September quarter contracted 7.5 per cent on year, data released by the National Statistical Office yesterday showed, compared to a decline of 23.9pc in the previous three months.
Analysts in a Reuters poll had forecast an 8.8pc contraction in the latest period.
Annual growth of 3.4pc in farm sector and 0.6pc in manufacturing during September quarter raised hopes of an early recovery as the government gears up to distribute coranavirus vaccines to a country with about 1.4 billion people.
“The Q2 GDP numbers are encouraging,” said Krishnamurthy Subramanian, chief economic adviser at the ministry of finance, after the release of the data.
Citing growth in manufacturing and farm sectors, he said there were signs of a “V” shaped recovery helped by a pick up in demand for consumer and investment goods.
“Overall, while the recovery provides optimism, caution on the pandemic and therefore on the economy is still warranted.”
Consumer spending – the main driver of the economy – dropped 11.3pc year-on-year in July-September compared to a revised 26.7pc fall in the previous quarter, data showed, while capital investments were down 7.3pc compared to a 47.1pc fall in the previous quarter.
The Reserve Bank of India, which has slashed its benchmark repo rate by a total of 115 basis points since March to cushion the shock from the crisis, is expected to keep rates on hold at its policy review meeting next week due to growing concerns about inflation.