India's economy likely rebounded in April-June amid pandemic risks

India's economy likely rebounded in the April-June quarter from a deep slump last year helped by improved manufacturing and in spite of a devastating second wave of Covid-19 cases.

Asia's third-largest economy suffered one of the biggest hits among major economies, contracting 7.3% in 2020/21, after a nationwide lockdown early last year. But the economy has not been as badly affected from the second wave in April-May this year due to less stringent lockdowns by state governments.

However, many analysts say the risk of spiking infections from the Delta variant and the slow pace of vaccinations in some states could hit India's growth momentum, with the economy unlikely to reach its pre-pandemic level of about $2.9 trillion before the middle of next fiscal year beginning April.

A Reuters survey of 41 economists projected gross domestic product grew 20.0% in the June quarter from a year earlier, versus a record contraction of 24.4% in the same quarter a year earlier.

If the median poll forecast is realised, it would be the fastest growth since the mid-1990s when official quarterly data was available, and up sharply from 1.6% in the previous quarter. read more

The Reserve Bank of India(RBI), which has kept its monetary policy loose, has forecast annual growth of 9.5% in the current fiscal year, although it has warned about the possibility of a third wave of the pandemic. 

Many sectors like retail, auto sales, farm output, construction and exports have picked up since June, supporting the government's claim of a fast recovery, but some sectors such as transport, tourism and consumer spending remain weak.

"Nearly one million of about 4 million trucks plying long-distance cargo are still off the road, hit by a closure of many businesses and a recent surge in virus cases in the state of Kerala and neighbouring Tamil Nadu," said Anjani Mandal, CEO of Bengaluru-based Fortigo Logistics.

A spike in cases of the more transmissible Delta variant has caused supply chain disruptions for many manufacturers, which could weigh on factory output and add to gloom for an already fragile recovery, he said.

Unlike advanced economies, which announced massive stimulus to support consumers, Prime Minister Narendra Modi opted for raising spending on infrastructure, privatisation of state companies and tax reforms to bolster mid-term growth prospects, while providing free foodgrains to the poor. 

"The government's measures, if successful, could put the economy on a high growth path of 7.5-8% in coming years," said N.R. Bhanumurthy, vice-chancellor, Bengaluru Ambedkar School of Economics University, while forewarning of short-term risks this year.