Economic Watch: India's economy recovers slowly amid fears of 3rd COVID-19 wave

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by Pankaj Yadav

NEW DELHI, Sept. 6 (Xinhua) -- India's economy, after being battered by two successive COVID-19 pandemic waves over the past one-and-a-half years, is on a recovery path, though at a slow pace.

The pre-pandemic economic level in the country is yet to be attained, even as the country's economy is expected to grow in double figures in the current financial year (April 2021-March 2022).

Several credit rating agencies' forecasts put India's growth touching 10 percent in the current financial year. Global financial services firm Morgan Stanley maintained its estimate of India's gross domestic product (GDP) growth at 10.5 percent, versus the general consensus of 9.2 percent.

The ongoing vaccination drive is considered crucial for economic recovery. The more successful the vaccination drive against the pandemic is, the greater the chance for India's economic growth, experts believe.

Experts are also optimistic about the economic recovery in the wake of the ongoing festive season, which normally culminates with the festival of lights Diwali as people indulge in huge shopping sprees, thus giving an impetus to overall consumption demand.

Over the past few weeks, the industrial output and exports have picked up, and so has the overall consumption demand. All indicators point towards economic revival, provided there is no new fresh outbreak of the pandemic. Health experts have repeatedly warned of a possible third COVID-19 wave in the country in the remaining part of this year.

GDP GROWTH AND ESTIMATES

India's GDP grew at a record pace of 20.1 percent in the first quarter (April-June) of the current financial year, according to the official data released by the federal government on Tuesday.

This was described as the "fastest" quarterly GDP growth ever since the country started storing official growth data from the mid-1990s.

The record growth in the April-June quarter was attributed to a weak base, and a sharp rise in consumption demand during the said period this year.

In comparison, the GDP growth was 1.6 percent in the fourth quarter (January-March) of the last financial year (which ended on March 31).

According to the official data, the economy grew 20.1 percent in the first quarter of the current financial year against the same period a year ago when the economy had contracted 24.4 percent, in line with what economists predicted earlier, said media reports.

A report by The Hindu newspaper said that, despite the 20.1 percent growth in the first quarter, India's "economic activity remained well-below pre-pandemic levels thanks to the second wave of COVID-19."

The federal government's Chief Economic Advisor Krishnamurthy Subramanian noted that the growth for the full year is likely to remain around 11 percent, as projected by the Economic Survey.

"India is poised for stronger growth, driven by structural reforms, the government's push for capital expenditure to enable private investment and a rapid COVID-19 vaccination drive," he said.

EXPORTS GROWTH

According to the latest official data released by the federal government, India's total exports grew by more than 45 percent during August year on year to 33.14 billion U.S. dollars, compared with 45.17 percent in August 2020, and 27.5 percent in August 2019.

The merchandise exports in April-August 2021 stood at 163.67 billion dollars, up 66.92 percent from April-August 2020, up 22.93 percent from April-August 2019.

However, due to a significant increase in imports during the said month, the trade deficit widened to 13.9 billion dollars, the highest in the past four months.

A. Sakthivel, president of the Federation of Indian Export Organisations (FIEO), said that the continuous growth in exports since March this year not only augurs well for the economy as a whole, but also reiterates the commitment and hard work of India's exporting community.

He said the rise in exports also showed that exporters have continuously been giving their best in response to the federal government's call for achieving the export target of 400 billion dollars for the financial year.

PRODUCTION AND CONSUMPTION UP

As an encouraging sign of economic revival, industrial output has risen over the past few weeks, particularly after the end of the second wave which hit the country in April-May this year. The second wave saw new COVID-19 cases over 400,000 and deaths of more than 4,000 per day for several consecutive days.

According to the federal government's latest official data available for the month of June, industrial production rose by 13.6 percent. The manufacturing sector's output surged by 13 percent, mining output was up by 23.1 percent and power generation surged by 8.3 percent, compared with June 2020, when the Index of Industrial Production (IIP) had contracted by 16.6 percent.

During the first quarter of the current financial year, the IIP grew by 45 percent against a contraction of 35.6 percent in the same period last financial year.

Car makers reported an increase in sales during August, compared with the same month last year. Honda Cars India Ltd., a leading manufacturer of premium cars in the country, registered monthly domestic sales of 11,177 units, against 7,509 units sold in August 2020, and 6,055 units sold in July 2021.

Similarly, car major Maruti Suzuki India Ltd. posted total sales of 130,699 units in August 2021, including domestic sales of 105,775 units, and exports of 20,619 units.

According to the company, its sales volume in August 2021 was affected due to an electronic components shortage, even as it took all possible measures to limit the adverse impact.

RISING UNEMPLOYMENT

Amid several indicators of growth revival, the country is seeing a worrying rise in unemployment. The Center for Monitoring Indian Economy's (CMIE) latest data showed that 1.5 million people had lost their jobs in August.

The total number of employed individuals fell from 399.38 million in July to 397.78 million in August, including 1.3 million in the rural area, revealed the CMIE data.

The national unemployment rate jumped sharply to 8.32 percent in August after falling to 6.95 percent in July, due to uneven recovery, according to a report by the India Today group.

According to the CMIE data, urban unemployment rose by 1.5 percent to 9.78 percent in August, whereas it stood at 8.3 percent in July. Meanwhile, rural unemployment increased by 1.3 percent to 7.64 percent in August, compared with 6.34 percent in July.

The rising unemployment is "not a healthy sign" for long-term economic growth, the report said. Recovery in India's job market was cut short by the second wave and the job environment has remained weak ever since.

At least eight states in India reported unemployment in the double digits in August.

The fate of the job market will depend on whether the country can sustain the current growth momentum, avoid a potential third wave and generate more demand during the upcoming festive season, added the report. Enditem

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