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India steps out of recession with marginal GDP growth of 0.4% in Q3 2020-21, but with rising inflation and high unemployment rate – is it enough?

India may be out of recession as came the news yesterday that India registered a GDP growth of 0.4% in the third quarter of the fiscal year 2020-21, as per the data from the National Statistical Office (NSO)
The Finance Ministry was quick to term the 0.4% growth in GDP in Quarter 3 as a return to ‘the pre-pandemic times of positive growth rates’ and a reflection of a ‘further strengthening of V-shaped recovery that began in Quarter 2.’

However, this is not a significant indication that all is well with the economy – the reason why there is a 0.4% growth in GDP can be attributed to the fact that as the lockdown has been eased and economic and business activities paced up – a small rise in GDP is a natural consequence of the same.

Hence, to revel in this small percentage rise is misleading, especially as the country is now reporting fresh cases of Covid -19 in different states. As a result, many states are mulling on a lockdown again.

While the government is projecting the GDP figure as a positive, the opposition party – Congress on Friday said that Indians had been hit by the “double whammy” of low growth and high inflation, solely blaming the NDA government for its “gross mismanagement” – this statement was made by Congress’ spokesperson Randeep Surjewala who further added the growth is “far below estimation” and the “fault lines in the Indian economy are more visible than ever before.”

 

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What Congress’ has said is not very far from the truth, the reason being the biggest concern for the citizens of this country are issues such as rising inflation (a continuous hike in fuel prices, LPG, and food products) and also combatting the rising unemployment rate which has been hit hard as more and more people have lost their jobs (Due to the Covid -19 pandemic) but the fact is that the rising unemployment was the biggest challenge in front of Indians even before the pandemic.

The recent turn of events, the address in the Parliament by Mr. Narendra Modi which was primarily addressing the private sector and acknowledging the contribution of this sector towards India’s growth (right to a large degree), but the concoction hid the finer print which was – the youth of the nation and others alike should not look at the government for jobs – instead it should go out in the market ( as if that is not already happening, with thousands in line for securing a job even if it means smaller paychecks) and search for prospects.

 

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What is the Market Pulse?
A direct indication, if the economy is on an upward swing, is the way the markets react. While the stock market has been pulling a few rabbits out of its hat – it has also been highly volatile.

Investors lost around Rs. 5.3 lakh crore on Friday as the benchmark BSE Sensex crashed more than 1939 points to post its biggest single-day crash in nearly ten months.
Hence, while the Union Budget did lead for the markets to resume their shine as Corporate Inc went gaga over the budget announcements, the markets are currently not so gung ho.

What is the projection for GDP?
It is expected that India’s GDP during 2020-21 is expected to contract by 8% as compared to the growth rate of 4.0% in 2019- 20, this against the estimation of growth in India’s real GDP during 2020-21 at -8%; hence we need to brace ourselves for what is to come.

As per the NSO (National Statistics Office), there is a contraction in almost all sectors with the exception of agriculture – however (while we are still seeing a standoff in regards to the Agri bills), the Agricultural sector growth is estimated to be lower than 4% growth recorded in 2019-20, and for the year 2020-21 to see a growth of 3.4%.

Another bothersome thing is that the central government may have to incur a larger fiscal deficit than what was initially announced at Rs 12 lakh crores.
One of the reasons it is probably passing on the hike in fuel prices to the citizens.
The economy had contracted by an alarming rate of 23.9% in the first quarter and 7.5% in the second quarter of the fiscal because of the Covid -19 pandemic, and we are still not out of it.

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What has Mr. Modi said recently?
On Friday, Mr. Modi said his government has a clear vision for the country’s financial sector and that to “strengthen the public sector, equity capital infusion is being stressed on.”
As far as the NPA (Non – performing Assets) are concerned, a new ARC(Asset Reconstruction Company) structure is also being made.

He also commented on the country’s financial and banking sector, which according to him, had weakened because of aggressive lending about ten years ago.
He reiterated his support for the private sector and said, “our endeavor is to promote private sector business, but public sector banks and insurance sector have an important role in the country.”

The government may reiterate it has a plan, but with elections in almost four states, the rising inflation, a surge in Coronavirus cases, and mass unemployment are issues that will need to be considered and cannot just be swept under the carpet or depend on the private sector for a solution. The private sector has contributed tremendously towards the country’s growth by providing employment opportunities, better paychecks, and exposure, but at the same time, the private sector is driven by profits alone; as much as it gives, so much it takes.

 

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