Under PM Modi, India's economy in recession first-time ever: Rahul Gandhi

Daniel Fowler
November 28, 2020

However, the possibility that a rise in Covid-19 infections may necessitate the re-imposition of fresh restrictions, causing the momentum of the recovery to falter, remains a risk.

India's Annual Gross Domestic Product (GDP) for July-September 2020 slowed down to 7.5 percent, government data showed on Friday. The contraction of 7.5 per cent is seen as a sign of revival after the GDP saw an unprecedented 23.9 per cent decline during the April-June quarter (Q1) due to the nationwide lockdown to contain the novel coronavirus.

However, despite the improvement, the Indian economy entered recession in the second quarter.

Finance Minister Nirmala Sitharaman, under Atmanirbhar Bharat, listed stimulus package worth Rs 2.65 lakh crore with a focus on job creation and sectors such as real estate, taking the total monetary and fiscal aid in the country's battle against Covid-19 to Rs 29.88 lakh crore or 15 percent of its GDP.

However, the considerably compression in the contraction of gross fixed capital formation to 7.3 per cent in Q2 FY2021 from 47.1 per cent in the previous quarter has come as a surprise, even though it mirrors the trend in capital goods.

NSO data showed that agriculture continued to register positive growth in this quarter as well, at 3.4 per cent.

This means that sequentially, India's GDP grew by 22 per cent in the quarter. Since the government announced the lifting of the strictest lockdown imposed to prevent the spread of the pandemic in June, several indicators have pointed to a recovery and significant narrowing. "While we have crossed the peak of the first wave in September, winter months must warrant caution".

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"I would say that given what we have seen in Q1 and Q2 and with the optimism that is being seen in the estimates, I do see upside potential in that estimates", he said.

Sreejith Balasubramanian, economist - fund management, IDFC AMC, said manufacturing growth was strong along with agriculture but services and construction growth was still negative. "Catch-up action was firm in manufacturing activity reflecting better profitability from the corporate sector, alongside farm output which benefited from timely monsoons".

This trend underscores the reduction in purchasing power along with lower tax collection for the government, likely defaults on debt and falling Capex spends. "This reflects constrained headroom for the centre as well as state governments in the first half of the year", Radhika Rao, Senior Vice President and Economist, DBS Bank said.

India's economy showed a GDP contraction 7.5% in July-September quarter and held out hopes for further improvement on better consumer demand. 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", the NSO said.

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