The year 2020 has changed the economic dynamics across the globe with the unprecedented spread of the Covid-19 pandemic, having no parallel in the modern history in the severity of economic impact. As a result, parameters of economic activity contracted massively in the first quarter of FY2020-21, reflecting the disruption of economic activity following the onset of the pandemic.

To control the impact of the pandemic, the Central Government of India and Reserve Bank of India (RBI) acted swiftly by a slew of fiscal and monetary measures. These timely undertaken measures resulted in better than expected results in September 2020 quarter, with green shots observed in a number of high-frequency economic indicators.

The present analysis attempts to analyse the trend of movement of major economic indicators to judge the health of the Indian economy in FY22.

  1. India’s GDP growth on a path of recovery

In the pre-Covid period from December 2018 to December 2019, real Gross Domestic Product (GDP) and Gross Value Added (GVA) growth rates in India were in the positive zone, albeit at a decelerating rate due to synchronised global slowdown with subdued investments and exports. With the onset of the Covid-19 pandemic and the complete shutdown of economic activity from March 2020 onwards following the nationwide lockdown aggravated the situation, leading to a contraction in GDP by a record 24.4 percent y-o-y in Q1FY21.

The GDP contraction continued in the Q2FY21 quarter as well with -7.3 percent y-o-y, thereby officially entering the Indian economy in a ‘technical recession’ owing to a broad-based slowdown across sectors. GVA growth also contracted but at a slower pace of 7.3 percent y-o-y as compared to a -22.8 percent y-o-y decline in the prior quarter. However, the pace of contraction slowed down significantly, and green shots in high-frequency economic indicators started showing up on the back of relaxation in lockdown norms and pent up demand. GDP growth returned to the positive growth trajectory in Q3FY21 with 0.4 percent¬†¬† y-o-y growth reflecting the revival of economic activity and base effect.

Agriculture and industry supported GDP by growing at 3.9 percent y-o-y and 2.7 percent y-o-y respectively in Q3FY21. However, services witnessed a contraction of 0.97 percent y-o-y but at a much slower pace compared to the previous quarter.

On the expenditure side, positive growth was recorded in gross fixed capital formation after contracting for the first two quarters of FY21. Other components of expenditure witnessed a contraction in Q3FY21 but at a much slower pace as compared to Q2FY21. Private spending contracted, but at a much slower pace of 2.4 percent y-o-y as economic activity started to revive. Government expenditure contracted by 1.1 percent yoy and export of goods and services contracted by 4.6 percent.
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