Private investment, government spending holds up economic growth in Q2
According to official data, the Indian economy grew by more than 8% in the second quarter of 2021-22, owing to an increase in government spending and a pick-up in private investment, both of which were aided by widespread vaccination coverage. However, economists warn that the economic recovery may be weak in the future because to the potential upside risks to growth offered by the new COVID -19 variant Omicron.The gross domestic product increased by 8.4% in the second quarter of this fiscal year, with a low base of (-) 7.4% in the same time last year, according to figures released by the national statistical office on Tuesday. It is the fourth consecutive quarter of economic expansion, with GDP exceeding by 0.3 percent the pre-Covid level of 2019-20. It shows that the economy has regained some of the ground lost as a result of the Covid-19 epidemic.
GDP is still 4.4 percent lower in the first half of 2021-22 than it was in the same period last year. The GDP increased by 20.1% in the first quarter and 13.7 percent in the first half of the fiscal year.Economists expect full-year growth to be close to 9%, with the pace of increase expected to slow in the second half due to a large base effect and fears of Covid-19 resurfacing.While the services sector improved slightly, industrial activity remained subdued in the second quarter, owing to a slower-than-expected recovery in economic demand over the pre-Christmas period.
“Although the strong GDP growth estimates are primarily attributable to the base effect, they show that the economy is fast recovering from Covid 2.0. In fact, in level terms, the second quarter GDP is presently larger than the same period in 2019-20. However, we believe that, in the near term, both fiscal and monetary policy support would be required to guarantee that the economic recovery continues, notwithstanding the threat posed by the new COVID -19 variant omicron “Sunil Kumar Sinha, India Ratings and Research’s Principal Economist, stated.Gross fixed capital formation, a proxy for private investment, increased by 11% in the second quarter and was 1.5 percent higher than the 2019-20 levels. Its GDP share climbed to 28.4 percent from 27.2 percent in the previous quarter and 26.2 percent in the previous year’s equivalent quarter.
“The lone silver lining appears to be a 1.5 percent increase in gross fixed capital formation in Q2 2021-21 over Q2 2019-20. Following a somewhat healthy holiday season, numerous indicators have slowed in November 2021, indicating that the economic recovery has yet to become sustainable “ICRA Ltd.’s Chief Economist, Aditi Nayar, stated. While increased vaccine coverage and fuel tax reduction will improve confidence and re-energize demand, the threat of increasing prices could stifle the rebound in the second part of the fiscal year, she noted.
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