GDP growth for Q3 of current fiscal shows positive growth of economy returning to pre-pandemic times

• 27, Feb 2021

Finance Ministry has said, Real GDP growth of 0.4 percent in the third quarter of 2020-21 has returned the economy to the pre-pandemic times of positive growth rates. It is also a reflection of a further strengthening of V-shaped recovery that began in Second quarter of 2020-21. The sharp V-shaped recovery has been driven by rebounds in both Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF).

GFCF has improved from a contraction of 46.4 per cent in quarter one to a positive growth of 2.6 per cent in third quarter, PFCE has recovered from a contraction of 26.2 per cent in first quarter to a much smaller contraction of 2.4 per cent in third quarter.

Besides the overall uptick in the economy, the resurgence of GFCFin third quarter was also triggered by Capex in Central Government that increased year-on-year by 129 per cent in October, 249 per cent in November and 62 per cent in December 2020.

The fiscal multipliers associated with Capex are at least 3-4 times larger than Government Final Consumption Expenditure (GFCE) as Capex induces much higher consumption spending than normal income transfers.

However, GFCE has played a critical role since April, 2020 as apart from supporting lives and livelihoods it provided the initial stimulus to the economy.

Ministry said, a continuous decline in the pandemic curve and a step-up in vaccination drive, as recently announced will support the further revival of contract-based services.

Sources : News on AIR