India's economy grew in three months to March before new Covid wave hit

Gross domestic product rose 1.6 per cent in the year to March 31, ahead of analysts' expectations

An empty escalator in a deserted  shopping mall during lockdown restrictions in Noida in the Indian state of  Uttar Pradesh. India's economy is forecast to grow 10% this year, according to economists Show more

India’s economy expanded faster than expected in the three months to March 31, before a resurgent coronavirus pandemic unleashed a new wave of challenges.

Gross domestic product rose 1.6 per cent from a year earlier during the quarter, the Statistics Ministry said Monday. That was faster than the 1 per cent median estimate in a Bloomberg survey of economists.

The number marks the second straight quarter of expansion following a rare recession, which tipped the economy into an unprecedented 7.3 per cent contraction for the full fiscal year that ended in March. That compares with a median 7.5 per cent decline estimated in a Bloomberg survey.

Stocks jumped 1 per cent, the biggest advance in 10 days, before the GDP numbers were published. The yield on the benchmark 10-year government bond rose two basis points to 6.02 per cent, while the rupee slipped 0.2 per cent ahead of the data.

While pent-up demand for everything from mobile phones to cars revived consumption in Asia’s third-largest economy after it reopened last year from one of the strictest lockdowns that lasted more than two months, India’s current status as the global virus hotspot could hurt those prospects. It could temper what will be fastest pace of growth among major economies this year.

India’s GDP will grow 10 per cent in the year that began on April 1, according to a median of 12 estimates compiled by Bloomberg News. That’s after several economists downgraded forecasts in recent weeks to factor in local curbs on activity, including in India’s political and commercial hubs, and the tardy pace of inoculation.

“Greater vaccination coverage, increased public investment and improved export demand are likely to be key factors supporting a stronger rebound,” Abhishek Gupta, Bloomberg's India economist, said.

Even the Paris-based Organisation for Economic Cooperation and Development, which by far had the most optimistic forecast of 12.6 per cent growth for India in its interim economic outlook in March, now sees a relatively modest yet world-beating 9.9 per cent expansion.

The downgrades are a message to not take the economy’s recovery for granted. Economists say the relaxation of restrictions across states will determine the strength of the rebound, while the willingness of consumers to spend – as they did last year when lockdown curbs were lifted – will also be key.

“Activity will improve only when [a] sufficient number of people are vaccinated,” said Devendra Kumar Pant, chief economist at India Ratings and Research, the local unit of Fitch Ratings. “So the risk as of now is the demand.”

While virus cases have started receding and some parts of the country look set to reopen in June, consumers are unlikely to spend freely, given the economic uncertainties and unemployment at its highest level in a year.

The government on Sunday expanded a $41 billion emergency credit program to airlines and hospitals to cushion them from the impact of the pandemic. The central bank, which will review interest rates later this week, has kept monetary policy loose and injected liquidity into the system to support growth.