IPD predicts the Q2 growth to be between -8% and -10%

Anindya Sengupta

The growth numbers for Q2, FY 20-21 is to be announced by the end of this month. This is the second quarter after the initiation of COVID-19. The economy gradually opened up during this quarter. It is of utmost interest to see how has been the initial recovery path of the economy after the severest drop in growth rate which was visible in the first quarter, FY 20-21. In this regard it is important to examine the trend in major economic indicators across months in this quarter.

IIP and Core Sector Growth

Source: Ministry of Statistics and Programme Implementation, Government of India

There has been a gradual improvement in both the index of industrial production (IIP) and the core sector growth over months. The IIP numbers have shown some nominal growth also in September, 2020 as compared to same month in the previous year. It however needs to be noted that there was a significant decline in IIP in September, 2019. So it could have been the low base factor. But this gradual improvement in growth rates is very important. A major contribution of IIP is coming from the manufacturing sector which is showing a -0.6% growth in the month of September, 2020. Manufacturing sector is one of the most people intensive sectors and hence its coming back to at least the last years level is a welcome trend. However it remains to be seen whether this is sustainable and also when it moves into the normal growth trajectory.

The Core sector growth also improved over months. With the relaxation of lock down and the economy beginning to work again, the production also started happening leading to the gradual improvement in growth of the core sector. These are encouraging trends.

Sectoral Credit Growth

With the gradual opening up of the economy as the production sectors are gradually showing lesser decline in growth rates, it is important to examine what will be the future pattern of growth. One important factor is the credit growth. More credit availed by the economy, more is the chance of that getting infused into the production sectors, leading to growth.

Source: Reserve Bank of India

The credit growth trends are not encouraging. Across all heads there has been a decline in credit growth over the months. The industrial sector witnessed almost no growth in September, 2020 which is alarming. This in a way indicates that while the production are increasing, the producers don’t expect it to grow further and hence lesser credit growth. The exception lies in the agricultural sector. This is witnessing a increased credit growth over months. It needs to be noted here that this is one sector which showed a positive growth in the stressed first quarter as well. The other sector which needs to be looked into is the services sector which is the most major contributor of GDP in India. There has been a decline in credit growth in this sector between August and July but in September we see some increase.

Personal credit growth in a way reflects the demand in the economy and growth in that has a multiplier effect on all sectors. This is showing an alarming trend with the gradual decline in personal credit growth over the months. The people are still rationalizing their spends and hence we see a gradual decline in the growth rate of persona credit growth. One possibility is that people were holding their expenses for the festive season, which started from October. So it will be very important to see how the personal credit growth rate trend has moved across the festive months. That will give a clear trend on what will the recovery strategy be for the Indian Economy.


Given the performance of key economic indicators, IPD pegs the second quarter ( July-September, 2020) to be between -10% to -8%. This will be significant improvement from the first quarter which showed a -23.9% growth. However with two consecutive quarters showing negative growth this is also reflective of recession as has been pointed out by RBI. Moreover there has been rise in prices of vegetables and other essential products. So a common Indian who is suffering from perhaps a income loss is actually spending more for essential commodities. However, with constant recovery in IIP and with the advent of festive season, where demands increase, one can expect that the situation will improve in the next two quarters.

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