GDP contraction 7.5% in Q2, India enters recession
Agriculture grew by 3.4%, while trade and services showed lower-than-expected contraction at 15.6%
NEW DELHI: India entered an unprecedented recession with the economy contracting in the three months through September due to the lingering effects of lockdowns to contain the coronavirus disease (Covid-19) outbreak.
Gross domestic product (GDP) declined 7.5% last quarter from a year ago, according to data released by the National Statistical Office (NSO) on Friday, even as it was marked improvement from a record 24% contraction the previous quarter.
India performed the poorest among major advanced and emerging economies and entered a technical recession for the first time since independence after it recorded a second straight quarterly decline in GDP.
“Current economic condition is reflecting impact of the Covid-19 pandemic,” said chief economic adviser KV Subramanian. He said the numbers were “quite encouraging” given the pandemic and compared with the previous quarter’s performance.
Manufacturing clocked a surprise 0.6% growth in July-September after it had shrunk by a massive 39% in the preceding quarter.
Continuing its good showing, the agriculture sector grew by 3.4%, while the trade and services sector showed lower-thanexpected contraction at 15.6%. Public spending was down 12%.
Reserve Bank of India (RBI) Governor Shaktikanta Das had on Thursday stated that the recovery from the lockdown has been stronger than expected and the economy could show growth in the fourth quarter.
NEW DELHI: India’s economy recovered faster than expected in the September quarter as a pick-up in manufacturing helped GDP clock a lower contraction of 7.5% and held out hopes for further improvement on better consumer demand.
The gross domestic product (GDP) had contracted by a record 23.9% in the first quarter of the 2020-21 fiscal (April 2020 to March 2021) as the coronavirus lockdown pummelled economic activity.
With the gradual opening up from June, the economy has picked up, according to official data released on Friday.
Manufacturing clocked a surprise 0.6% growth in July-September after it had shrunk by a massive 39% in the preceding quarter.
Continuing its good showing, the agriculture sector grew by 3.4%, while the trade and services sector showed lower-thanexpected contraction at 15.6%.
Public spending was down 12%. The GDP contraction of 7.5% in July-September compares with a growth of 4.4% in the same quarter last year.
China’s economy grew by 4.9% in July-September this year, faster than the 3.2% growth in April-June 2020.
Though the contraction in July-September pushed India into its first technical recession, based on records going back to 1996, a sharp recovery held out hopes for the economy turning around before the end of the fiscal year.
Reserve Bank of India (RBI) Governor Shaktikanta Das had on Thursday stated that the recovery from the lockdown has been stronger than expected and the economy could show growth in the fourth quarter.
The improvement in the economy came ahead of next week’s interest rate decision by the RBI and coincides with a drop in India’s daily virus cases, which have tapered off to half of its peak of more than 97,000 infections a day in mid-September
Krishnamurthy Subramanian, the government’s chief economic adviser, told reporters the numbers were “quite encouraging” given the pandemic and compared with the previous quarter’s performance.
Sovereign bonds declined Friday ahead of the data, with the yield on benchmark 10-year bonds rising 4 basis points to 5.9%, while the rupee declined 0.2% to ₹74.04 a dollar.
The central bank and government have each worked to support the economy, with total stimulus reaching around ₹30 lakh crore ($405 billion), or 15% of GDP. The RBI, which has cut interest rates by 115 basis points this year, is due to review monetary policy next week, with the stance expected to remain accommodative for the near future.
The stimulus, along with festival season demand, has helped spur activity in the economy, helping slowly replace concern about the depth of India’s recession with optimism that a recovery is taking hold.
A slew of indicators from car sales to services sector activity notched higher last month, while alternative data signal robust demand in an economy that’s primarily driven by domestic consumption.
“Today’s GDP print increases our confidence that recovery is gaining pace,” said Garima Kapoor, an economist at Elara Securities India Pvt. “While during initial period of unlocking, rural economy’s buoyancy was supportive, urban demand too has begun to normalise in prefestive period.”
Meanwhile, the Union government’s fiscal deficit further widened to ₹9.53 lakh crore, which is nearly 120% of the annual budget estimate, at the end of October of the current financial year, according to official data released on Friday.
The deficit widened mainly on account of poor revenue realisation. The lockdown imposed to curb spreading of coronavirus infections had significantly impacted business activities and in turn contributed to sluggish revenue realisation.
The fiscal deficit at the end of September 2020 was about 114.8% of the annual budget estimate.
In absolute terms, the fiscal deficit stood at ₹9,53,154 crore at October-end, which is 119.7% of the annual budget estimates, as per the data released by the Controller General of Accounts (CGA).
In the first seven months of 2019-20, the deficit was at 102.4% of the annual target.
Fiscal deficit had soared to a seven-year high of 4.6% of the GDP in 2019-20, mainly due to poor revenue realisation.