The economic toll from a deadly second wave of Covid-19 outbreak in India last quarter wasn’t as bad as feared, with the nation still very much on track to achieving the world’s fastest growth this year.
The first signs of it appeared in the economy’s fiscal first-quarter numbers published by the Statistics Ministry Tuesday, which showed gross domestic product advancing 20.1% in the three months to June from a year ago. That was in line with the median forecast for a 21% expansion in a Bloomberg survey of 45 economists.
Data also showed demand remained resilient in the economy with private consumption continuing to account for 55% of growth year-on-year.
The rupee completed its biggest monthly gain since May before the data was released, while stock indexes hit a new high amid optimism about the economy’s strong recovery. Bonds were up slightly.
A better-than-expected manufacturing performance and a milder hit to services, combined with a robust pace of vaccinations, also helped keep the annual growth outlook for the economy steady at 9.2%, according to a Bloomberg survey. That pace will be the quickest among major economies, surpassing China’s 8.5%.
“The economic damage appears to be less than previously expected,” Rahul Bajoria, chief India economist at Barclays Bank Plc., said before the latest quarterly numbers were released. “With the second outbreak brought under control, a rapid recovery appears underway,” he said.
Latest high-frequency indicators have shown the impact of pandemic restrictions were less severe than last year, enabling demand to recover quickly in the consumption-driven economy. Loans for consumer durables and vehicle purchase as well to real estate and small businesses grew in July, both month-on-month and from a year earlier, data published by the Reserve Bank of India showed.
That’s backed by optimism of factory managers in India, who saw a surge in activity in July amid a pick up in new orders, while a similar survey of services’ purchasing managers showed the sector was inching back toward expansion. Exports, which account for nearly a fifth of the economy, have been growing for the past eight months signaling strong global demand.
“The recovery from the second wave has been faster with activity indicators recovering lost ground in less than three months compared to 10 months in the first wave,” said Gaura Sen Gupta, an economist with IDFC First Bank. “High frequency growth indicators show that the economic cost of the lockdowns was lower.”
The milder hit to the economy coincides with India’s vaccination rate picking up pace over the last few weeks. And there’s room for further improvement, given that the country has managed to inoculate only just over 10% of it’s population — a key vulnerability given risks from a possible third wave of infections.
India started seeing a swift recovery in June and the July-September quarter has been very good so far, Shubhada Rao, founder at QuantEco Research in Mumbai, told Bloomberg TV on Tuesday. But risks loom in the form of an impending third wave and a disappointing monsoon, she said.
The threat from the pandemic has kept the nation’s central bank from unwinding its ultra-easy monetary policy, with Governor Shaktikanta Das reiterating that policy makers wouldn’t reverse course suddenly despite mounting inflationary pressures.
Prime Minister Narendra Modi plans to complement the monetary stimulus with fiscal measures. His government aims to raise 6 trillion rupees ($81.9 billion) by leasing out state-owned infrastructure assets over the next four years to fund new capital expenditure without further widening the budget deficit.