NEW DELHI -- India's economy grew 1.6% in the January to March quarter but recorded a contraction of 7.3% for the fiscal year that ended in March owing to the hit from the COVID-19 pandemic, official data released on Monday showed.
Ahead of the data release, a Reuters poll of economists forecast 1.0% growth for the three months through March. India's economy saw contractions in the quarters that ended in June and September last year, before turning positive in the third quarter that ended in December, with a modest 0.5% expansion, India's statistics ministry revealed on Monday, slightly up on the 0.4% expansion estimated earlier.
The March quarter growth rate was driven by expansion of domestic demand. Household consumption grew 2.7% over the year, while gross fixed capital formation -- private and public investment -- expanded over 10%.
"The [latest GDP] numbers are better than the markets were expecting," N. R. Bhanumurthy, vice chancellor of the Bangalore-based Dr. B. R. Ambedkar School of Economics University, told Nikkei Asia. "Except for mining and trade, hotels [and transport], other sectors have done very well in the March quarter."
However, the South Asian nation of more than 1.3 billion people is battling a more infectious and deadlier second wave of the pandemic, which has clouded the outlook for the current financial year. "We don't know when the second wave of the pandemic is going to stop, and already some are expecting that a third wave can happen," Bhanumurthy said.
"It is difficult to achieve the double-digit growth that many people had earlier projected, and we may be looking at 7-8% growth in the current year," he said.
From a high of more than 400,000 daily cases earlier this month, new infections have fallen to less than 200,000 per day recently. But that number is still big, considering that in the earlier wave of the pandemic new cases peaked at over 97,000 daily cases in September last year. As of May 31, India had a total caseload of 28 million, with 329,100 fatalities.
"The daily new infections have started to drop recently, though the incidence and replication factor still remains [too] high for comfort," the Reserve Bank of India, the country's central bank, said in its annual report published on May 27, adding that the macroeconomic costs of the current wave may be limited to the current April to June quarter, with a possible spillover into July. "The near-term outlook is clouded, with an accentuation of downside risks and potential externalities of global spillovers," the central bank said.
To aid the economic recovery, India needs to speed up its COVID-19 vaccination drive. The country, started its inoculation program on Jan. 16, and has so far administered more than 212 million vaccine doses nationwide -- mostly the first of two doses that people need for full immunization. Given that there are more than 900 million adults in India requiring two doses each, the pace of vaccination needs to be stepped up.
Several credit rating agencies have already slashed India's gross domestic product growth forecast for this fiscal year, as most parts of the country are experiencing localized lockdowns that could slow economic activity in the April to June quarter. Moody's Investors Service earlier this month lowered its GDP growth forecast for the current financial year to 9.3% from an earlier forecast for 13.7% growth, while Japanese brokerage Nomura lowered its projection to 9.8% growth, down from 11.5%.
"India has been particularly affected by a brutal second wave, which is overwhelming the public health system in large parts of the country," the United Nations said in a report published on May 11.
"Given the fluid situation, India's growth outlook in 2021 is highly fragile," it said, predicting growth of 7.5% for the current calendar year and 10.1% for 2022.