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
2015 | 2016 | 2017 | 2018 | 2019 | |
---|---|---|---|---|---|
Investment (annual variation in %) | 6.5 | 8.5 | 7.2 | 9.8 | - |
India Investment Chart

Source: Ministry of Statistics and Programme Implementation and FocusEconomics calculations.
India Facts
Value | Change | Date | |
---|---|---|---|
Bond Yield | 6.50 | -0.04 % | Jan 01 |
Exchange Rate | 71.23 | -0.09 % | Jan 01 |
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