According to the latest estimates released by NSO, the Indian economy grew y-o-y by 0.4% in the third quarter of FY2021 (October to December 2020) after contracting by 24.4% and 7.3% in the first and second quarters, respectively. GVA growth was 1.0%. It indicates a gradual recovery upon unlocking of the economy following severe disruptions to economic activities and livelihoods due to the COVID-19 pandemic. The economy grew by 3.3% in Q3FY2020.
While agriculture and industry sectors are projected to grow (y-o-y) by 3.9% and 2.7%, services sector is projected to contract by 1%. A bountiful harvest due to favorable monsoon and availability of agricultural inputs including abundant labor force that reverse migrated to the villages after the lockdowns contributed to the strong agricultural sector performance. In fact, rice output grew by 2% in Q3 FY2021 compared to 0.1% in the corresponding quarter in FY2020.
Industrial activities began to recover after five successive quarters of negative growth starting Q2FY2020. Within industry sector, mining and quarrying contracted by 5.9%, but manufacturing, electricity and other utilities, and construction activities continued recovery. The corresponding IIP data for industry sector show that mining contracted y-o-y by 4.4% and metallic minerals by 15.9%. However, manufacturing and electricity grew by 1.2% and 6.7%, respectively. That said, the cumulative data up to the third quarter show that all IIP broad sectors actually contracted in FY2021 compared to FY2020.
Within services sector, while financial, real estate and professional services recovered trade, hotels, transport, communication, and public administration and defense activities continued on contractionary trend. Travel and tourism industry still continues to be affected by the pandemic-related restrictions and consumer apprehension.
On the demand side, private consumption growth remains strong but public consumption growth is moderating. Gross fixed investment grew at a solid pace of 33.0% y-o-y compared to 32.3% in Q3FY2020. Exports of goods and services grew by 21.2% but imports decreased by 0.8%. So, it is strong private consumption and investment, partly assisted by the fiscal stimulus and subsidies provided by the government, that is driving growth. This is reflected in the supply-side data as strong agricultural sector growth and recovery of industrial sector activities.
The NSO also released second advance estimates, which show notable revisions in the benchmark estimates released in the first advance estimates. The extrapolation is based on information available during the first nine months of the fiscal year. It shows that the economy will likely contract by 8.0% in FY2021, steeper than in the first advance estimate. The economy is expected to grow by 4.0% in FY2020.
While agriculture sector is expected to grow by 3.0% in FY2021, industry and services sectors are expected to contract by 8.2% and 8.1%, respectively. Except for electricity and other utilities, other sub-sectors in industry sector are expected to contract sharply (over 8%). The disruption to travel and tourism activities is expected to contract trade, hotels, transport and communications activities by 18.0%.
