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Economic recovery on track in Jan’21

Expect real GVA growth of 3–4% YoY in 4QFY21

* Our in-house Economic Activity Index (EAI) for India’s real gross value-added (GVA; called EAI-GVA) posted faster growth of 4.9% YoY in Jan’21, v/s growth of 4.1% YoY in Dec’20 and 4.7% in Jan’20. Faster growth in Jan’21 was led by higher growth in the Services sector and farm activity. On the other hand, growth in industrial activity moderated during the month. Additionally, while the Services sector was driven by fiscal spending, expected decline in construction activity and slower growth in the Manufacturing sector led to muted industrial growth in Jan’21.

* EAI-GDP declined 3.7% YoY in Jan’21, at the slowest pace in 11 months, v/s a contraction of 4.8% YoY in Dec’20. This was largely on account of the slowest contraction in total consumption in 11 months. Excluding fiscal spending, EAI-GDP declined faster by 4.5% YoY in Jan’21. While external trade performed relatively better, investments declined faster in Jan’21, after posting the slowest decline in 10 months in Dec’20.

* Overall, aggressive fiscal spending and relatively better farm activity appear to have driven up overall economic activity in Jan’21. Additionally, as per early indicators, the growth momentum would continue in Feb’21 as well. While daily eway bill generation was at the highest ever level of 2.3m units, daily power generation was also up 4% YoY in Feb’21. With better growth expected over Feb–Mar’21 (partly supported by the base as well), we believe real GVA could grow 3–4% YoY in 4QFY21, but contract 6.2% YoY in FY21. Due to large subsidy bill payments over Feb–Mar’21 (suggested by the Union Budget documents), real GDP could actually contract or be much lower in 4QFY21.

* EAI-GVA grew 4.9% YoY in Jan’21: Preliminary estimates reveal India’s EAI posted faster growth of 4.9% YoY in Jan’21, against growth of 4.1% YoY in Dec’20 and 4.7% in Jan’20 (Exhibit 1). Faster growth in Jan’21 was led by twomonth-high growth in the Services sector and farm activity. On the other hand, growth in industrial activity moderated during the month (Exhibit 2).

* EAI-GDP also declined at a slower pace: Although EAI-GDP continued to decline, it contracted at the slowest pace in 11 months by 3.7% YoY in Jan’21 v/s 4.8% YoY decline in Dec’20 and 2.9% YoY growth in Jan’20 (Exhibit 3). Slower decline in EAI-GDP was on account of the slowest decline in consumption in 11 months and better external trade. Investments, however, declined much faster at 4.7% YoY in Jan’21, vis-à-vis -1.6% YoY in Dec’20 (Exhibit 4).

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