Investment in India
India - Investment
Decline in GDP moderates notably in Q3
The economy shrank at a softer rate of 7.5% year-on-year in the third quarter, beating analysts’ expectations of an 8.8% decrease, after contracting 23.9% in the second quarter. The more moderate fall was mainly the result of easing lockdown measures and ample monetary stimulus, which propped up domestic demand.
On the domestic front, the improvement was predominately driven by weaker drops in private consumption and fixed investment compared to the previous period. Household spending dipped at a softer rate of 11.3% year-on-year in Q3, following the 26.7% contraction in Q2. Fixed investment also fell at a more moderate pace of 7.4% in Q3 compared to the 47.1% decline recorded in the previous quarter. In contrast, government spending plunged 22.2% in Q3 (Q2: +16.4% yoy).
On the external front, exports of goods and services fell 1.5% in the third quarter, improving from the second quarter's 19.8% contraction. In addition, imports of goods and services dropped at a milder rate of 17.2% in Q3 (Q2: -40.4% yoy). Consequently, the external sector contributed 3.4 percentage points to overall GDP, but this was down from the 5.5 percentage-point contribution in the second quarter.
Looking ahead, the economy is expected to contract deeply this fiscal year, which ends in March 2021, as containment measures to control the spread of the virus and weak external demand weigh on economic activity. Meanwhile, despite strong monetary stimulus, fiscal measures to support the economy have been well below par—likely hampering the recovery somewhat. That said, improving business sentiment and a gradual return to normal operating conditions in the services sector points to firming domestic demand in H2 FY 2020. Moreover, positive news on the vaccine front should help prop up external demand, further supporting the recovery ahead.
Commenting on India’s GDP outlook, Sonal Varma and Aurodeep Nandi, analysts at Nomura, noted:
“We expect the economic recovery path to remain bumpy over the next two quarters until there is a wide distribution of vaccines. We expect a stronger pickup in H2 2021, as the economy benefits from the tailwinds of easy financial conditions, improved global growth and higher consumption and services activity due to reduced pandemic uncertainty amid widespread vaccinations. Medium-term balance sheet challenges remain, the impact of the pandemic on the informal sector is likely to be underestimated and job growth is a challenge – all of which will remain a medium-term growth drag, beyond the initial cyclical rebound in 2021.”
Our panelists see the economy contracting 9.3% in FY 2020 (April 2020–March 2021), which is down 0.2 percentage points from last month’s forecast. In FY 2021, our panel projects GDP to expand 9.2%.
India - Investment Data
|Investment (annual variation in %)||6.5||8.5||7.2||9.8||-|
5 years of economic forecasts for more than 30 economic indicators.
India Investment Chart
Source: Ministry of Statistics and Programme Implementation and FocusEconomics calculations.
|Bond Yield||6.50||-0.04 %||Jan 01|
|Exchange Rate||71.23||-0.09 %||Jan 01|
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February 15, 2021
Merchandise exports increased 8.2% in annual terms in January, on the heels of December’s 0.8% fall.
February 12, 2021
Industrial output rose 1.0% in December (November: -2.1% yoy).
February 12, 2021
Consumer prices dropped 0.64% over the previous month in January, a more moderate drop than the 1.01% seen in December.
February 5, 2021
At its monetary policy meeting ending on 5 February, the Reserve Bank of India (RBI) kept its policy rates unchanged, which met market expectations.
February 3, 2021
The composite Purchasing Managers’ Index (PMI) produced by IHS Markit rose from 54.9 in December to 55.8 in January.