Recovery may strengthen further in H2, says Finance Ministry

India’s economic recovery is expected to strengthen in the remaining quarters of the current fiscal year with the investment cycle kicking off, the finance ministry said, projecting 7% annual growth until the end of the decade.

The recovery theme is backed by upbeat market sentiment, vaccination coverage, strong external demand and policy support from the government and central bank, the ministry said in its monthly economic review for November. It cautioned that the Omicron Covid variant could derail the global revival and poses a threat to India’s services sector.

“India’s economic recovery is expected to gain further strength in the remaining quarters of the financial year, as evident from 19 among 22 high-frequency indicators (HFIs) in September, October and November of 2021 crossing their pre-pandemic levels in the corresponding months of 2019,” the review said.


“The recovery suggests kick-starting of the investment cycle,” it said, pointing to the strength in the housing market. “This uptick augurs well for corporate investments to pick up pace and complement the capex push on infrastructure by government.”

This would feed into the backward linkages of cement and steel industries that were already doing well, it said.

The preliminary evidence suggests that the Omicron variant won’t be too severe, especially with increasing vaccinations in India.

“The economy is better prepared to work with Covid, with rapidly growing vaccination coverage and lessons learnt from second wave in containing the contagion,” the report said. “Nonetheless, going forward, following Covid-19 appropriate behaviour along with ramped-up testing will be critical to shield the country from another wave and subsequent restrictions which may pose downward risk to India’s revival story.”

India will be among the few economies rebounding strongly from the contraction of 2020-21 due to Covid, according to the report.

The report noted India’s economy returned to pre-pandemic output levels in the second quarter, helped by a revival in the services sector, full recovery in manufacturing and sustained growth in the agriculture sector. “Real GDP in Q2 of FY2021-22 has grown by 8.4% year-on-year, recovering more than 100% of pre-pandemic output in the corresponding quarter of FY2019-20,” the report noted.

Recovery in some indicators such as power consumption, e-way bills, merchandise exports, coal production, rail freight traffic etc. exceeds 100%, which suggests that not only is the recovery complete, but economic growth is steadily gathering momentum over corresponding pre-pandemic levels of output, it stated. Exports and investment have risen 17% and 1.5%, respectively, over pre-pandemic levels, driven by demand recovery. Private consumption has emerged as a macro growth driver for the economy, accelerating from 88% in the first quarter to 96% in the second.

On the supply side, the manufacturing and construction sectors aided the agriculture sector in driving growth. Both manufacturing and construction have surpassed pre-pandemic levels.

“Reassuringly, GVA in trade, hotel, and communication services sharply improved from pre-pandemic recovery rate of 70% in Q1 to 90% in Q2, to become another emerging growth driver of the economy as contact-based services overcame the fear of the pandemic,” the report said.

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