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Q2 GDP shows surprising resilience: Is it good enough to last?

-Livemint.com/ PTI

* 'Despite being the worst affected sector in Q1(due to lockdown), it is quite puzzling how manufacturing turned itself around in Q2,' says Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI

* There is evidence of inventory buildup that could act as a drag on future manufacturing growth, says Ghosh

New Delhi: The surprise resilience shown by the manufacturing sector that restricted GDP contraction to only 7.5 per cent in September quarter could be a result of massive purge in costs such as employee cost by corporates and businesses, which could turn a potential headwind in future, economists at SBI wrote on Saturday.

India's July-September (Q2 of 2020-21 fiscal) GDP growth showed surprising resilience with contraction of only 7.5 per cent in real terms, while the market consensus was higher, wrote Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, in Ecowrap.

With improvement in manufacturing, due to lifting of lockdown measures GDP contraction has slowed down significantly. Agriculture sector continued to perform well with growth at 3.4 per cent. Services remained in the negative territory, although the decline was contained as trade, hotels, transport, communication and services related to broadcasting showed recovery.

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