Economy traces slow recovery with -7.5% GDP, India enters recession

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India’s economy has got back on its feet recording 7.5% contraction in the July-September quarter gross domestic product (GDP) data. India, which is Asia’s third-largest economy, saw a downfall of a record 23.9% contraction in the previous three months ending 30 June. Fiscal deficit in the seven months to end-October was noted at Rs 9.53 lakh crore ($128.9 billion), or 126.7% of the budgeted target for the whole fiscal year, government data showed. The June quarter was primarily the quarter that absorbed the shock of a nationwide lockdown due to the COVID-19 pandemic.

With the contraction in two successive quarters, India has officially made an entry into a technical recession in the first half of the current fiscal. The output of core industries shrank more in October than in September. It shrank 2.5% in October, against a drop of 0.8% noted in the previous month.

Manufacturing sector sprung back with a surprisingly good performance, reflecting marginal growth in the second quarter. However, the private consumption shrank by 11.5% showing that private demand gaining momentum is still some time away. Manufacturing GVA rose with 0.6% growth compared to a contraction of more than 39% in the first quarter. Electricity sector soared up with at 4.4% while agriculture sector paced up with more than 3%. Mining sector shrunk by 9.1% in Q2, compared to 23.3% in the previous quarter. The construction sector also showed a boosted recovery with the fall narrowed from 50.3% in Q1 to a fall of 8.6% in Q2.

Here is the GDP of other sectors:

  • Trade and Hotels: -15.6%
  • Finance, Insurance and Realty: -8.1%
  • Public Admin, Defence: -12.2%

A positive jump was estimated in this quarter. “We had estimated the contraction in the second-quarter GDP at about 13.5%. The leading indicators of the economy did not record significant recovery until September. The trade, hotels and transport sectors did not show much recovery. Recovery in the construction sector was patchy due to the non-availability of migrant labour; manufacturing suffered from both labour shortage and supply disruptions. Floods in many parts of the country created disruptions in the farm sector, and government expenditure was stagnant. Thus, although the relaxation of the lockdown resulted in an improvement in economic activity to some extent, the capacity utilisation continued to below.” Dr M. Govinda Rao, Chief Economic Advisor, Brickwork Ratings had reported prior to the release of GDP data.

“With the economy reviving and recovering due to relaxation in COVID-19 lockdown restrictions, we can expect more growth in Q3 of the current fiscal year. The festive season will also a big reason why there will be a recovery in Q3 as sectors such as automobile, real estate, and consumer durables saw a steady and big increase in their revenues.” Prateek Rathee, Real Estate Developer and Founder & CEO of Homezop said.

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