“The record year-over-year increase in Indian GDP in the second quarter was entirely due to base effects,” wrote Shilan Shah, senior Indian economist at Capital Economics in a research note. Around the same time last year, India recorded a 24% drop in its GDP.
Even as the infection rate skyrocketed, Modi resisted pressure to impose another national lockdown, a strategy intended To prevent millions of people from slipping fall back into poverty. This meant that while the human cost of this spring’s outbreak was staggering, economic activity quickly rebounded once cases started to decline.
Yet the second wave wreaked havoc on the economy. India does not provide official quarterly GDP data, but Capital Economics estimates that the economy shrank 12% in the April-June period from the previous three months.
“[This] The contraction is … very large by historical standards, and stronger than we expected, “Shah added.
Anagha Deodhar, Chief Economist at ICICI Securities, said Tuesday’s annual growth figure was lower than she expected.
“If you look at pre-pandemic levels, we are still a smaller economy of 3 trillion rupees ($ 41 billion),” Deodhar told CNN Business, adding that manufacturing, agriculture and exports have worked well for the country recently. “Exports are the engine of growth primarily because the global economy is recovering faster than that of the country.”
Business activity has slightly exceeded pre-pandemic levels over the past three weeks, according to a Business Recovery Index compiled by Nomura, which tracks mobility indices, electricity demand and participation rate in the labor market, among other measures.
There are other positive signs as well: India’s vaccination rate has increased as the country is on track to fully vaccinate about half of the population by the end of the year, Nomura analysts said.
But economic recovery is still under threat in the coming months, as cases start to rise again in southern India’s Kerala state. Nomura analysts said a potential third wave “cannot be ruled out,” particularly as the festive Diwali season approaches.