India Enters Technical Recession as Its GDP Contracts 7.5%
- by Johnnie Parks
- in Money
- — Nov 28, 2020
India's economy is likely to have shown signs of a pick-up in the quarter to September after a record contraction the previous quarter, and is expected to recover early next year on hopes of better consumer demand fed by progress on coronavirus vaccines.
Data released by the National Statistical Office (NSO) on Friday confirmed that the economy plunged into recession with two successive quarters of contraction. China's economy grew by 4.9 per cent in July-September this year, faster than the 3.2 per cent growth in April-June 2020. However, the crucial services segments fell for the second quarter in a row. The central bank in a bulletin had predicted that the growth rate will contract by 8.6% in the second quarter. "GVA at Basic Prices at Current Prices in Q2 2020-21 is estimated at ₹42.80 lakh crore, as against ₹44.66 lakh crore in Q2 2019-20, showing a contraction of 4.2 percent", it added.
Maintaining that he is "cautiously optimistic", the CEA highlighted that this caution is warranted in light of the fact that the economic contraction is primarily driven by the pandemic.
Also, given the uncertainty, it is hard to predict if the economy will enter the positive territory in the third or fourth quarters of this fiscal.
More news: Chinese foreign minister arrives in S.Korea amid talk about Xi visitHe said because of the uncertainty due to a second wave of cases across the country, it will be hard to predict if economic growth reaches positive territory in October-December and January-March quarters.
Icra principal economist Aditi Nayar said she expects a stronger rebound in the second half of the fiscal. "It is very hard to predict a number (for the whole year)", he said while cautioning about a fresh wave of Covid-19 as winter sets in.
The data released on Friday further showed that the country's gross value added (GVA) contracted by 7% during the quarter.
Annual GDP has contracted on four previous occasions, the last in 1980-81.
More news: Ravens-Steelers game pushed to Tuesday due to COVID-19 testsAccording to the NSO, the GDP at "Constant (2011-12) Prices" in Q2FY21 is estimated at Rs 33.14 lakh crore as against Rs 35.84 lakh crore in Q2FY20, showing a contraction of 7.5 per cent as compared to 4.4 per cent growth in Q2FY21. Manufacturing, mining and construction contracted 39.3 percent, 23.3 percent and 50.3 percent respectively, while trade, transport, communication and related services contracted by 47 percent.
Analysts in a Reuters poll had forecast an 8.8% contraction in the latest period. Though the restrictions have been gradually lifted, there has been an impact on the economic activities. It was followed by 12.2 per cent contraction in public administration, defence and other services, 8.6 per cent contraction in construction, and 8.1 per cent contraction in financial, real estate, and professional services. Low gross fixed capital formation contraction at only 7.3% despite down new projects, ongoing projects on hold, govt capex down is inexplicable. Government final consumption expenditure contracted 22.2% in Q2 after growing 16.4% in Q1.
In contrast, the services sector as a whole recorded a deeper contraction in Q2 FY2021 than what we had estimated, confirming the view that the contact-intensive portions of the economy will experience a delayed and hard recovery. "Growth momentum is expected to pick up in 3QFY21, turning strongly positive in 4QFY21", D K Srivastava, Chief Policy Advisor, EY India said.
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