India's Q2FY21 GDP contracts 7.5%, technical recession confirmed
India's GDP has contracted 7.5 per cent during the July-September quarter of FY21, confirming that the country is going through a technical recession.
Two weeks after a team of Reserve Bank of India (RBI) economists said India is in a technical recession, Gross Domestic Product (GDP) data released on Friday officially confirmed the same. The GDP contracted 7.5 per cent in the July-September quarter of 2020-21.
The official GDP data released for the second quarter (Q2) today by National Statistical Office (NSO) showed that the Indian economy has contracted in two consecutive quarters -- called technical recession -- for the first time since 1996 when the country began recording quarterly growth rates.
The GDP at constant (2011-12) prices in Q2FY21 has been estimated at Rs 33.14 lakh crore, as against Rs 35.84 lakh crore in Q2 of 2019-20, showing a contraction of 7.5 percent, according to the official NSO data.
"Quarterly GVA at Basic Prices at Constant (2011-12) Prices for Q2 of 2020-21 is estimated at Rs 30.49 lakh crore, as against Rs 32.78 lakh crore in Q2 of 2019-20, showing a contraction of 7 percent," it added.
Commenting on the Q2 GDP data, Chief Economic Advisor K Subramanian said, "Our economy is doing well. Our economy was doing well before the pandemic hit us. The pandemic hit us in March and that was the reason for Q1 GDP number coming at -23.9 percent."
Commenting on the Q2 GDP data, Sreejith Balasubramanian, Economist - Fund Management, IDFC AMC, said, “India’s Q2 FY21 real GDP contraction of 7.5% y/y was in line with our forecast and the recent improvement in economic data.”
“As expected, manufacturing growth was strong with the y/y number turning positive, alongside agriculture, but services (including public administration in line with the y/y fall in Q2 government spending) and construction growth was still negative,” he added.
He, however, said economic data ahead would be crucial to gauge the quantum of ‘froth’ in this Q2 data from pent up, festive and inventory restocking demands and to also throw more light on the employment and wage situation.
“How the rate of cost-cutting done in Q2 by companies to improve profits moves, the domestic Covid infection rate in the next few weeks, the situation in our major export markets and the policy support there would all mater. Most important to see would be how flat the recovery leg eventually is and thus the hit to medium-term potential growth,” Balasubramanian added.
Soon after the official GDP data was released, Congress leader Rahul Gandhi slammed the central government and Prime Minister Narendra Modi. He said, "Under PM Modi, India's economy is officially in a recession for the first time ever. More importantly, 3 crore people are still looking for work under MNREGA."
"The economy cannot be ordered to grow by diktats. PM needs to first understand this basic idea," he added.
In the April-June quarter, the Indian economy had contracted by a whopping 23.9 percent on the back of a strict coronavirus lockdown from the last week of March till early May. The RBI’s internal model anticipated a GDP contraction of 8.6 per cent for the July-September quarter.
The economists had earlier expected a contraction in the second quarter of the fiscal. They also expect a milder contraction of 3 percent in the October-December quarter. The first expansion of the Indian economy by 0.5 percent is expected in the January-March quarter next year.
A milder GDP contraction in July-September compared to the April-June period has come on the back of a series of stimulus packages under the Atmanirbhar Bharat program.
Atmanirbhar Bharat 3.0 measures worth Rs 2.65 lakh crore were recently announced by Union Finance Minister Nirmala Sitharaman.
The focus of the stimulus packages has been on job creation and restarting different sectors of the economy. The government has announced measures of a total worth of almost 30 lakh crore or about 15 percent of the GDP.
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