A less than expected contraction in the economy in the second quarter at 7.5 per cent has generated expectations that the economy is on the mend but there are still many imponderables such as any possible rise in infections and fears over the adverse consequences over the severe squeeze in government consumption expenditure that have prompted analysts to be more circumspect in their outlook.

While some are projecting a recovery in the fourth quarter, others reckon that the third quarter will show a negative trend: -1 per cent to -2 per cent. The fiscal spending (consumption + investments) posted its first major contraction since 2014-15 and is the worst on record; on the contrary, decline in private spending narrowed to -9.2 per cent in the second quarter from -35.4 per cent YoY in the first quarter, Motilal Oswal said in its Ecospace report.

In its November bulletin, the RBI has said October data has stirred up consumer and business confidence. “If this upturn is sustained in the ensuing two months, there is a strong likelihood that the Indian economy will break out of contraction of the six months gone by and return to positive growth in Q3 of 2020-21.”

Analysts at Nomura have said contraction in the current fiscal will be 7 per cent against it earlier projection of 9 per cent to “reflect the outturn and faster normalisation”.

Global ratings agency S&P on Monday retained its forecast of 9 per cent contraction in the Indian economy for the current fiscal, saying even though there are now upside risks to growth it will wait for more signs that Covid infections have stabilised or fallen.

“Much would depend on the sustainability of the consumption demand seen in the month of October . Therefore, these are still early days and the data for a few more months will have to be watched,” Sunil Kumar Sinha, principal economist, India Ratings and Research, said.