India Is Now In Technical Recession, Q2 GDP Declines 7.5%

The Indian economy contracted 7.5% in the second quarter of financial year 2020 - 2021 (July - September), reported the Ministry of Statistics and Program Implementation (MOSPI) on Friday, continuing the trend of the contraction of the Indian economy.

However, this figure is better than that of the first quarter, where India's economy contracted 23.9% in the first ever economic decline in over 40 years. This contraction in the second quarter confirms that India has for the first time entered a 'technical recession'; economic parlance to indicate that an economy has faced two successive quarters of decline.

Also Read: India's GDP Shrinks -23.9% in Q1 In Worst Ever Decline

All sectors of the economy, except agriculture and farming, manufacturing and electricity, which grew at 3.4%, 0.6% and 4.4% respectively, posted a decline. Construction declined 8.6%; trade, hotels and transport declined at 15.6%, finance and real estate at 8.1%, mining at 9.1% and government, public administration and defence at 12.2%. Therefore, India's gross value added in this period declined 7% - a measure of the income side of various sectors of economy.

Again, the sector-wise performance is an improvement over last quarter that captured the full effect of the nationwide lockdown imposed as a measure to combat the ongoing COVID-19 pandemic. In the previous quarter, agriculture was the only sector that grew 3.4%. Construction declined over 50.3% and trade, hotels and transport over 47%.

Earlier this month, the Reserve Bank of India, using a short-range 'nowcasting' model of 27 high-frequency indicators, found that the economy had contracted 8.6% in the second quarter and had entered a technical recession. Today's numbers corroborate this forecast.

The Indian economy has performed better than what was estimated by the RBI on October 9 right after its monetary policy announcement. The central bank said that the Q2 decline would be 9.8% as part of its forecasting exercise. The research desk of the State Bank of India expected a -10.7% decline, ICRA ratings a 9.5% decline and CRISIL a 12% decline and CARE Ratings a 9.9% fall.

Economy to contract in FY21

Despite these numbers, India is slated to witness an economic contraction in financial year 2020 - 2021. Though there is unanimity across research houses, brokerages and rating agencies that economic contraction will occur in FY21, the quantum of this contraction varies.

The RBI has estimated an 9.5% decline for the year during its October policy announcement, in the first official number coming from a public authority since the lockdown was announced in March and RBI Governor Shaktikanta Das gave an indication of an economic contraction in May. International organisations, namely the International Monetary Fund estimates a 10.3% fall and the World Bank a 9.6% contractions. Goldman Sachs on the other hand goes a notch up and estimates a 14.8% decline.

Also Read: RBI Says Economy To Contract 9.5% In FY21, Keeps Rates Unchanged

Find the PIB release here.