Rising momentum in business activity led by public spending has helped the Indian economy take the much-needed exit track from recession in the Oct-Dec quarter last year. Economists surveyed expect the economy to show a modest 0.8% expansion in the final quarter of 2020. Government will release the data on late evening on Friday. Public spending took the lead in accelerating activity as disbursements rose 29% in October to December vs a contraction of 12% in the previous quarter.
The RBI Governor also reiterates that growth had become very dependent on public expenditure even before the pandemic hit. In fact, spending analysis shows that every rupee spent by the govt results in a growth of Rs 3 in the economy. Consumption activity was aided by the festive season and it was noticeable in the sales of consumer durables and non-durables in the final quarter of the calendar year. Auto sales numbers indicated a big recovery in sentiment seeing the biggest single quarter jump in the last 2 years, though the low base also helped. This is definitely light at the end of the tunnel and not an aberration as indicators in January are holding onto the turnaround during the festive period. Markit India PMI has been above the 50 mark indicating an expansion since September. But will this growth hold that’s the real question and the market remains divided on the response for now.