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Economic recovery underway, but still a long way to go: India Ratings

BENGALURU: The economy grew at a compound annual growth rate of only 1.3% between the first quarters of 2020-21 and 2022-23, compared to a CAGR of 6.2% in the previous three years during the first quarter 2016-17 and first quarter 2021-22, India Ratings and Research said in a report.

He said that although the ongoing recovery of the Indian economy is on track, there is still a long way to go. He pointed out that while the first quarter gross domestic product growth at 13.5% was boosted due to the base effect, it also highlighted the resilience of the Indian economy to global headwinds emanating from rising commodity prices and the Russia-Ukraine conflict.

Some of the major economies such as China, the United States, the United Kingdom and the Eurozone over the same period grew by 0.4%, 1.7%, 2.9% and 3.9% , respectively.

“In the aftermath of Covid-19, analysis of year-on-year growth does not paint a true picture of the economic recovery due to the weak base in FY21 and FY22. Therefore, a better way to Assessing the recovery of GDP/Gross Value Added (GVA) is to compare the growth trend taking the pre-Covid-19 period as the basis,” he stressed.

Among all sectors, CAGR growth of the services sector shows the largest decline at 1.0% during Q1FY20-Q1FY23, compared to 7.1% during Q1FY17-Q1FY20, implying that the recovery in the sector is still the weakest,” says Paras Jasrai, Analyst, Ind-Ra.

The household sector, which accounts for 44% to 45% of gross value added, saw its growth in nominal wages decline to 5.7% in fiscal years 2017-21, from 8.2% in fiscal years 2012- 2016. “This means that wage growth in real terms is close to around 1%. Given that much of the growth in consumer demand is driven by wage growth in the household sector, a pick-up in their wage growth will be essential for a sustained and sustained recovery in private final consumption expenditure and overall GDP growth in FY23,” the note said.

He pointed out that economic activity was progressing well, but the recovery was uneven. “Economic activity in sectors like manufacturing, while growing, is uneven. YoY growth in industrial production came in at 12.3% YoY in Q1FY23, but on a sequential basis (seasonally adjusted) contracted 0.1% YoY on the other in June 2022,” the note read.

Service activity is slowly resuming as normalcy returns after a two-year gap, with most Covid-19 restrictions having disappeared. Freight (ports and airways) and freight (railways) traffic grew strongly in the range of 8.3% to 15.1% year-on-year in July 2022, but passenger traffic ( both air and rail) is still below pre-pandemic levels even in July 2022. Non-food credit growth was 15.1% year-on-year in July 2022, driven by broad-based growth in all subheadings (industry, personal loans, services, etc.).

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