Home Business Indian economy contracts by 7.5% in Q2

Indian economy contracts by 7.5% in Q2

Indian economy contracts by 7.5% in Q2

Country enters technical recession.

India’s Gross Domestic Product (GDP) contracted 7.5% in the second quarter of 2020-21, following the record 23.9% decline recorded in the primary quarter, as per estimates launched by the National Statistical Office on Friday. The nation has now entered a technical recession with two successive quarters of destructive progress.However, the economy’s efficiency between July and September when lockdown restrictions have been eased is best than most ranking businesses and analysts anticipated. While most had estimated a contraction of round 10%, the Reserve Bank of India had projected a 8.6% decline in the second quarter.

Indian economy contracts by 7.5% in Q2

Sharp restoration

Agriculture, which was the one sector to document progress between April and June this 12 months, grew on the identical tempo of three.4% in the second quarter, whereas manufacturing gross value-added (GVA) staged a pointy restoration to document 0.6% progress between July and September after collapsing 39.3% in the primary quarter.

Electricity, gasoline, water provide and different utility providers additionally recorded 4.4% progress in the second quarter, recovering from a 7% contraction in Q1. But it remained a bleak quarter for a number of sectors, together with mining, providers akin to retail commerce and motels, building and monetary providers.

“We should be cautiously optimistic as the economic impact is primarily due to the pandemic and the sustainability of the recovery depends critically on the spread of the pandemic. The government remains ready to come up with calibrated responses,” stated Chief Economic Adviser (CEA) Krishnamurthy Subramanian, stressing that there may very well be neither an excessive amount of exuberance nor extreme pessimism at this level.

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Citing the uncertainty induced by the pandemic, Mr. Subramanian stated the ‘V-shaped recovery’ ought to proceed however it’s troublesome to make certain about constructive progress returning in the remaining two quarters of this 12 months. Finance Minister Nirmala Sitharaman had earlier suggested that the economy could record near zero growth in 2020-21.

“The economic indicators and the industrial output numbers indicate that the recovery is happening very well. But because the effect is primarily from the pandemic, we should keep that in mind especially with the winter months ahead,” Mr. Subramanian instructed The Hindu.

‘Very encouraging’

“The recovery is clearly very encouraging but this is still a period of uncertainty, and is reflected in the fact that the actuals are more encouraging than the estimates of several commentators,” he stated.

Also learn | Indian economy witnessing strong recovery: Nirmala Sitharaman

Rating company Crisil attributed the better-than-expected progress to pent-up demand, assist from agriculture and choose export sectors, value financial savings for corporates and a ‘learning to live’ perspective.

“The second-quarter (Q2) GDP data have lent a positive bias to our full-year call of 9% contraction. However, there are some signs of flattening of economic activity in the third quarter which will need to be monitored closely along with the further spread of COVID-19,” stated the agency’s chief economist Dharmakirti Joshi.

Construction sector

The building sector, which had contracted 50.3% in the primary quarter on the peak of the lockdown towards COVID-19, noticed some enchancment with contraction narrowing to eight.6% in the second quarter.

Also learn | Govt working on short, medium-term measures to control price rise: Finance Minister

Trade, motels, transport and providers remained deeply affected, shrinking 15.6% between July and September after a 47% dip in Q1. Mr. Joshi expects the providers sector to be extra weak in the second half, significantly contract-based providers.

“Till the pandemic doesn’t go away, some of the sectors affected by social distancing such as services like travel and tourism will continue to experience demand slump. And services accounts for a good part of India’s GDP,” Mr. Subramanian stated.

Govt. spending

While the 7.5% contraction in GDP got here as a constructive shock, there are issues a few decline in authorities spending and the worsening destiny of two key sectors in comparison with the primary quarter.

Also learn | Pandemic an act of God, says Nirmala Sitharaman

“The loss of momentum in government spending in the second quarter led to a 22% contraction in government final consumption expenditure. As a result, this component turned into the worst performer on the expenditure side from being the best performer with a 16.4% expansion in the first quarter,” identified Aditi Nayar, principal economist at ranking company ICRA.

The CEA responded to those issues by pointing to improved personal consumption and funding. Consumption contracted by 11.32% in the second quarter, in comparison with a 27% decline in the primary. Investment demand as measured by Gross Fixed Capital Formation improved from -47% in the primary quarter to -7.4% in Q2.

“The Indian economy is driven 90% by private consumption and investments and the improvements in those numbers, despite some decline in government spending, I would read as a positive sign,” he stated.

Financial, actual property {and professional} providers recorded a 8.1% contraction in GVA from a 5.3% dip in Q1, whereas the GVA from public administration, defence and different providers contracted 12.2% from a ten.3% shrinkage in the primary quarter.

Ms. Nayar additionally urged warning on studying an excessive amount of into the manufacturing sector restoration, because it may very well be pushed by aggressive cost-cutting measures, a decrease wage invoice and benign uncooked materials prices.

“The extent of the recovery in the performance of the informal sectors in Q2 remains unclear, and we caution that trends in the same may not get fully reflected in the GDP data, given the lack of adequate proxies to evaluate the less formal sectors,” she stated.

Lockdown curbs

The National Statistical Office additionally harassed that its estimates are hampered to some extent by the restrictions imposed in the primary quarter of this 12 months in the course of the nationwide lockdown.

“Though the restrictions have been gradually lifted, there has been an impact on the economic activities. In these circumstances, some other data sources such as GST, interactions with professional bodies, etc. were also referred to for corroborative evidence and these were clearly limited,” it famous.

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