New Delhi, Nov 28 (IANS): Although the 7.5 percent contraction in the Q2 GDP came in as a surprise, giving hopes to a faster economic recovery, the pace of revival continues to be under the cloud of uncertainty amid rising Covid cases across the country.

Chief Economic Adviser (CEA) to the government of India, Krishnamurthy Subramanian, in a presentation on Friday noted that while recovery provides optimism, caution on the pandemic and therefore on the economy is still warranted.

"Till the pandemic does not go away, some of the sectors that are affected by social distancing will continue to experience demand slump," the presentation said.

It said that sustainability of the economic recovery depends critically on the spread of the pandemic.

Dharmakirti Joshi, Chief Economist, CRISIL, said that there are some signs of flattening of economic activity in the third quarter.

"Hence, further spread of Covid-19 will remain the key monitorable. The services sector will be more vulnerable in the second half, particularly contract-based services," Joshi said.

Rumki Majumdar, Economist, Deloitte India, said: "Since the quarterly GDP data is released with a lag of two months, we should look at these numbers in the rear-view mirror, keeping in perspective that the recent high-frequency data possibly suggest a quicker rebound ahead. The possibility of the release of several highly effective vaccines soon gives us hope that there is an end date to the pandemic, even if it may not be immediate."

She said that three drivers will ensure a sustained economic revival and rehabilitation, inclusive job growth, a robust services sector rebound, and a sustained recovery in private demand.

"A slew of high frequency indicators suggest that the economic recovery is becoming entrenched," said a Barclays report.

It said that if the recovery stays on track, the economy is expected to return to positive growth as early as Q4 (Barclays estimate: 0.4 per cent YoY), a quarter ahead of the central bank's projections. Barclays further said that the RBI is likely to revise its estimate higher next week at its upcoming MPC meeting.

Industry bodies have applauded the better than expected GDP numbers, but have urged the government to come up with more measures to enhance demand.

"Going ahead, the government should keep a close watch on the demand side. While the festive season will continue till December and the earlier demand-oriented measures announced by the government will take effect, we feel it will be important to lend further support to consumption activity," said Sangita Reddy, President, FICCI.

She said the government can look at extending the consumption voucher idea to all rather than just government employees. Additionally, the government must continue to invest heavily in the infrastructure sector as it can be a real driver for growth and employment, she said.