Indian growth jumps in April-June, helped by looser pandemic curbs

·3-min read

By Manoj Kumar and Aftab Ahmed

NEW DELHI (Reuters) - India's economy rebounded in the April-June quarter even while a devastating second wave of COVID-19 swept the country, with growth of over 20% compared to a year earlier driven by a surge in manufacturing and higher consumer spending.

The expansion nevertheless fell short of the 21.4% predicted by the central bank, which some analysts said would make the Reserve Bank of India (RBI) more likely to retain its accommodative stance until at least year-end.

Gross domestic product expanded 20.1% in April-June, the first quarter of India's fiscal year, compared with the same period a year earlier, driven mainly by manufacturing and construction, the statistics ministry said on Tuesday.

That was in line with a Reuters poll forecast of 20.0% and compared with a record contraction of 24.4% in the same quarter of 2020.

The period included April-May's second wave of the coronavirus pandemic but activity was less affected than during last year's initial spread because lockdown measures adopted were less stringent.

The Indian economy, Asia's third-largest, shrank 7.3% in 2020/21, putting it among major economies hit worst by the COVID-19 crisis.

The government's chief economic adviser K.V. Subramanian said private investments and consumer spending were driving a V-shaped recovery, and that the economy was well placed to deal with the impacts of any move by the U.S. Federal Reserve to tighten liquidity.

"India is poised for stronger growth," he said, citing government reforms and the easing of inflationary pressures while cautioning that certain services were still not seeing "green shoots".

While advanced economies have provided massive stimulus to support consumption, Prime Minister Narendra Modi has opted to raise infrastructure spending and pursue privatisation of state companies and tax reforms to bolster India's growth prospects, while providing free foodgrains to the poor.

The RBI https://www.reuters.com/world/india/india-keeps-rates-hold-expected-market-eyes-clues-policy-normalisation-2021-08-06, which has kept its monetary policy loose, has forecast annual growth of 9.5% in the current fiscal year while warning about the possibility of a third pandemic wave.

Consumer spending, the main driver of the economy, rose 19.34% year-on-year in April-June from a year ago, but remained lower than its pre-pandemic level.

Investment rose 55.3% compared with growth of 10.9% in the previous quarter, while state spending contracted 5% after growing 28.3% in January-March, Tuesday's data showed.

Annual growth of 49.6% in manufacturing in April-June was a leap from 6.9% in the previous quarter and showed new anti-COVID-19 curbs had only a limited impact on activity.

RISK OF SPIKE IN INFECTIONS

Many analysts said the risk of spiking infections https://www.reuters.com/world/india/indian-states-preparing-next-covid-wave-focus-children-2021-08-19 from the Delta variant and the sluggish pace of vaccinations in some states could slow momentum, however, with the economy unlikely to regain its pre-pandemic size of about $2.9 trillion before the middle of fiscal year 2022-23.

"Vaccination progress will be crucial, given the possibility of a third wave of infections and the experience of countries which witnessed it," said Sreejith Balasubramanian, economist- fund management at IDFC AMC in Mumbai.

Retail, auto sales, farm output, construction and exports have all picked up since June, supporting the government's claim of a fast recovery, but sectors such as transport and tourism spending remain weak.

Many forward indicators remain below pre-pandemic levels, noted Shashank Mendiratta, economist at IBM in New Delhi.

"With substantial slack still in the economy, continued policy support will be required to get activity back to normalcy," he said.

(Reporting by Manoj Kumar and Aftab Ahmed in New Delhi, Rama Venkat in Bengaluru; Editing by Catherine Evans)

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