GDP shrinks by 7.5% in Q2, India in technical recession
After a record 23.9% slump in the previous quarter, the Indian economy rebounded a little in the July-September quarter, as the gross domestic product (GDP) shrank by 7.5%. Though the data released by the National Statistical Office (NSO) paints a comparatively better picture, India's technical recession has begun. During the second quarter, the services sector was the worst-affected, while manufacturing picked pace. Here's more.
COVID-19 pandemic derailed India's economic growth
Since 1996, when India began releasing quarterly records, this is the first time that a slump was recorded for two consecutive quarters — pushing the nation to a recession. Evidently, the coronavirus pandemic is to be blamed for the downward trend that the Indian story has taken, casting doubts over Prime Minister Narendra Modi's ambition of turning the country into a $5 trillion economy.
Economists predicted 8.8% slump in second quarter
Chief Economic Adviser Krishnamurthy Subramanian saw the latest figures as encouraging but noted that until the pandemic is over, sectors, affected by social distancing, will continue to suffer. "We should be cautiously optimistic," he said. It is pertinent to highlight that economists had predicted an 8.8% slump in GDP in the second quarter, implying that India performed better than expected.
Services sector worst-hit, followed by public administration
Among the eight major sectors, the services sector was the worst-affected, recording a 15.6% contraction. Trade, hotels, transport, and accommodation, clearly have not been able to put the impact of March's lockdown behind them. Public administration, defense, and other services registered the second-highest slump at 12.2%. Construction recorded 8.6% contraction and financial, real estate and professional services 8.1%.
Manufacturing sector grew by 0.6%
The manufacturing sector emerged from the negative territory — it shrunk by 39.3% in Q1 — to record 0.6% growth. Electricity, gas, and other services grew by 4.4%, and agriculture by 3.4%. A combination of data from the first two quarters reveals that GDP growth rate contracted by 15.7% between April and September. Last year, 4.8% growth was recorded for the same time frame.
Only UK fared poorer than India, China recorded gains
The data suggests India is one of the worst performers globally. Only the UK, with a 9.6% contraction in the September quarter, performed worse than India. China, from where the virus originated last year, posted a 4.9% growth. Although, India's daily coronavirus numbers seem under control, a surge of infections in some states, sparked curbs, which would eventually impact the economy.
Expert maintained real GDP would contract in FY21
Kunal Kundu, India economist at the French investment bank, Societe Generale, said the worst for the Indian economy was over. "We would retain our view of FY21 real GDP contracting by 8.6%, given the likelihood of a much weaker third-quarter activity," he told TOI. And Subramanian said one should neither get "too pessimistic" after the data, nor "too exuberant."
