India enters technical recession as GDP contracts 7.5% in Q2

India’s GDP had contracted by 23.9% in the last quarter.
PM Narendra Modi and FM Nirmala Sitharaman
PM Narendra Modi and FM Nirmala Sitharaman
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India’s economy contracted by 7.5% in the July-September quarter, showing some recovery a quarter after the country recorded the worst performance since it started reporting quarterly data in 1996. India’s GDP had contracted by 23.9% in the last quarter. Having recorded two quarters of GDP contraction, India now enters into a technical recession. In the same quarter last year, GDP had hit a six-year low of 4.5%.

“At constant prices, GDP is 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% as compared to 4.4% growth in Q2 2019-20,” Ministry of Statistics & Programme Implementation said in a statement. 

While the country was in a stringent lockdown for most part of Q1, the economy has considerably opened up since, with most services opening up as of September. 

In the January-March quarter, GDP growth had slowed to 3.1%, while the country’s GDP in FY20 had declined to 4.2% from 6.1% in FY19, the slowest in the last 11 years.

Meanwhile the index of the core industries in India declined by 2.5% as compared to the same period last year. Between April to October, there was a 13% decline. Coal production saw a decline of 11.6% in October, while production of petroleum refinery products saw a 17% decline. 

The eight core industries include coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity. The only industries that saw growth were fertilizer production, which was up 6.3%, cement production, which was up 2.8% and electricity generation, which increased 10.5%.

The Reserve Bank of India had predicted earlier this month that India’s economy would contract by 8.6% in the September quarter. With this, India will enter a technical recession for the first time in history, RBI's nowcast had predicted at the time. 

A recessionary phase in an economy is when an economy is an expansionary phase and the GDP contracts with each subsequent quarter. However, when it continues for long enough, it could be termed as a recession. And while recession is generally understood to be when GDP contracts, it is understood that two consecutive quarters of GDP decline would put the country in a technical recession. Prior to the pandemic, the economy was in a slowdown. 

“India has entered a technical recession in the first half of 2020-21 for the first time in its history with Q2:2020-21 likely to record the second successive quarter of GDP contraction,” wrote Pankaj Kumar in the Monetary Policy Department of the RBI in this month’s RBI bulletin. This, however, he said, could be short lived.

Forecasts of economists had been marginally revised upwards after reports of an uptick in consumer demand, amid expectation of a COVID-19 vaccine that is expected to be coming soon.

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