Indian economy claws back faster than expected in Q2; contraction at 7.5%

Cornelia Mascio
Novembre 27, 2020

India's economy contracted 7.5 percent between July and September, performing the poorest among major advanced and emerging economies and entering a technical recession for the first time since independence, official data showed Friday.

The index is constructed from 27 monthly indicators using a dynamic factor model and suggests that the economy rebounded sharply from May/June 2020 with the reopening of the economy, with industry normalising faster than contact-intensive service sectors.

The data also showed that the country has begun its gradual recovery following the nationwide lockdown in April, May, and June which had flatlined the economy.

Gross Domestic Product (GDP) was recorded at 33.14 trillion rupees (RM1.82 trillion) in the 2020-21 fiscal year's second quarter, compared with 35.84 trillion rupees (RM2.0 trillion) during the corresponding period last year, the National Statistical Office (NSO) said on Friday.

The July-September quarter a year ago had witnessed a GDP growth of 4.4 per cent.

"We should be cautiously optimistic".

"The resurgence of COVID cases in many geographies poses a risk to economic revival in the coming quarters", said Anagha Deodhar, economist at ICICI Securities, Mumbai.

Private economists, who have marginally raised growth forecasts this month, said the recovery would depend on the wider distribution of vaccines amid risks of a second wave of infections spreading to remote areas limiting the broader gains.

India's GDP had contracted 23.9 per cent in Q1. "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 release added.

The statement said during the quarter trade, hotels, transport and communication saw a dip of -15.6 per cent while public administration, defence and other services by -12.2 per cent. However, analysts warned this could be because of low base effect from July-September 2019.

Manufacturing rose 0.6%, electricity and gas expanded 4.4% and agriculture grew 3.4%.

Gross fixed capital formation was 29 per cent, nearly the same as July-September a year ago.

The stimulus, along with festival season demand, has helped spur activity in the economy, with a slew of indicators from auto sales to services sector activity edging higher last month.

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