Investment in India

India - Investment

Economic growth hits a record high in Q2

Economic growth surged in the second quarter of the calendar year 2021 (Q1 FY 2021), with GDP expanding 20.1% on an annual basis (Q1 CY 2021: +1.6% year-on-year). Q2's reading marked the strongest increase since current records began and was largely the result of a low base effect. Consequently, output was still down 9.2% compared to the same period in CY 2019.

The upturn reflected improvements in private consumption and fixed investment. Private consumption growth increased to 19.2% year-on-year (Q1 CY 2021: 2.7% yoy). Fixed investment growth picked up to 55.3% in the quarter from 10.9% in Q1 CY 2021. In contrast, government consumption declined 4.8% in Q2 (Q1 2021: +28.3% yoy).

On the external front, exports of goods and services rallied, jumping 39.1% year-on-year in the second quarter (Q1 CY 2021: 8.8% yoy). In addition, imports of goods and services growth accelerated to 60.2% in Q2 (Q1 CY 2021: 12.3% yoy). As a result, the external sector subtracted 3.6 percentage points from growth, which was stronger than the 1.0 percentage-point contribution in the prior quarter.

Looking to H2 CY 2021 (H2 FY 2022), underlying growth momentum is unlikely to be sustained, due to still-elevated uncertainty surrounding the pandemic and as the impact from the low base effect fades. Nevertheless, activity should still show some resilience and grow robustly for the remainder of this calendar year as some easing of restrictions in recent months supports the services sector.

Commenting on India’s GDP outlook, Barnabas Gan, an economist at UOB, noted:

“In a nutshell, India’s growth prospects will depend largely on how Covid-19 evolves. India’s GDP had expanded strongly from its full-year contraction of 7.3% in FY2020/21, and anecdotal evidence from lower Covid-19 infections and higher vaccination rates are credible signals that the economy is gearing towards a more resilient growth pattern. On the back of an accommodative monetary policy expected in the year ahead, coupled with a strong fiscal response as seen from the Union Budget, we keep to our full-year growth outlook of 8.5% in FY2021/22.”

FocusEconomics panelists project GDP to expand 9.0% in FY 2021, which is down 0.2 percentage points from last month’s forecast, and increase 7.3% in FY 2022, which is up 0.2 percentage points from the previous month’s estimate.