Economy News Update : Jan consumption, investment growth points to faster recovery for Indian economy

Insight Online News

New Delhi, March 3 : The Indian economy seems to be moving on the path of faster recovery with key indicators on consumption and investment showing a sharp slowdown in contraction in January, 2021.

According to Ecoscope report of Motilal Oswal Financial Services, the country’s total consumption (personal and government) contracted 4 per cent YoY in January, 2021, against 4.4 per cent YoY in December, 2020 and 3.4 per cent YoY growth in January, 2020.

On the investment front though contraction at faster pace by 4.7 per cent in January, 2021 has been seen, the overall movement since May has been positive as investment contraction has declined at faster pace.

The positive signals coming from slowdown in contraction of investment and consumption in the very first month of last quarter period of FY21 indicated that GDP growth may pick up momentum during the quarter.

After two consecutive quarters of sharp decline, the real GDP has come into positive territory in October-December quarter clocking a growth of 0.4 per cent. The GDP growth will have to be faster in Q4 to contain overall contraction to 8 per cent level as projected by the statistics ministry now.

The brokerage Ecoscope report pointed to other positives in the January data that indicates towards a V shaped recovery of the Indian economy. As per the brokerage’s in-house Economic Activity Index (EAI) for India’s real gross value-added (GVA; called EAI-GVA) posted faster growth of 4.9 per cent YoY in January,21, v/s growth of 4.1 per cent YoY in December, 20 and 4.7 per cent in January, 20.

Faster growth in Jan’21 was led by higher growth in the Services sector and farm activity. On the other hand, growth in industrial activity moderated during the month. Additionally, while the Services sector was driven by fiscal spending, expected decline in construction activity and slower growth in the Manufacturing sector led to muted industrial growth in Jan’21, the report said.

The EAI-GDP declined 3.7 per cent YoY in Jan’21, at the slowest pace in 11 months, v/s a contraction of 4.8 per cent YoY in Dec’20. This was largely on account of the slowest contraction in total consumption in 11 months.

Excluding fiscal spending, EAI-GDP declined faster by 4.5 per cent YoY in Jan’21. While external trade performed relatively better, investments declined faster in Jan’21, after posting the slowest decline in 10 months in Dec’20.

“Overall, aggressive fiscal spending and relatively better farm activity appear to have driven up overall economic activity in Jan’21. Additionally, as per early indicators, the growth momentum would continue in Feb’21 as well,” the report said.

While daily e-way bill generation was at the highest ever level of 2.3m units, daily power generation was also up 4 per cent YoY in Feb’21. With better growth expected over Feb-Mar’21 (partly supported by the base as well), the brokerage believes real GVA could grow 3-4 per cent YoY in 4QFY21, but contract 6.2 per cent YoY in FY21.

“Due to large subsidy bill payments over Feb-Mar’21 (suggested by the Union Budget documents), real GDP could actually contract or be much lower in 4QFY21,” the report said.

IANS

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