India GDP Q2 Data: India’s Gross Domestic Product (GDP) for the July-September quarter (Q2) contracted by 7.5 per cent following an unprecedented decline of 23.9 per cent in the April-June quarter, as per provisional estimates released by the Ministry of Statistics and Programme Implementation (MoSPI) on Friday. The GDP had expanded by 5.2 per cent in the corresponding quarter of 2019-20.
With this latest development, the Indian economy has entered into a technical recession for the first time in history. In economics, when the GDP growth rate is negative for two consecutive quarters or more, it is termed a recession.
The GDP during the April-June quarter (Q1) had contracted by 23.9 per cent, the worst contraction in the history of the Indian economy, owing to a strict nationwide lockdown due to the novel coronavirus (COVID-19) during the bulk of the quarter. However, the nation has gradually moved out of the lockdown phase and the government has gradually eased several restrictions, with the boiler rooms of the economy sputtering back to life.
On Thursday, Reserve Bank of India (RBI) Governor Shaktikanta Das said the economy had exhibited a stronger-than-expected pick-up in momentum of recovery but cautioned about the “sustainability of demand”. Interestingly, the RBI had ‘nowcast’ that GDP for the July-September quarter was set for a contraction of 8.6 per cent. The RBI, however, said the economy would break out of contraction of the six months gone by and return to positive growth in the October-December quarter of 2020-21.
As per the government data, the gross value added (GVA) at basic prices at constant (2011-12) during the September quarter shrunk 7.0 per cent. The GVA at basic prices at current prices slipped 4.2 per cent in Q2 2020-21.
According to the MoSPI data, the manufacturing industry showed a 0.6 per cent rise in the September quarter, after crashing by a whopping 39.3 per cent in Q1. Likewise, the electricity, gas, water supply and other utility services segment grew 4.4 per cent in Q2, snapping from a 7 per cent fall in the previous quarter. Agriculture, forestry and fishing industry grew at a constant pace of 3.4 per cent in Q2, unchanged from the previous quarter.
Among the other industries, contraction in trade, hotels, transport, communication and services related to broadcasting was 15.6 per cent in Q2, much better from a contraction of 47.0 per cent in Q1. The construction sector too showed a contraction of 8.6 per cent, better from a 50.3 per cent contraction in Q1.
Chief Economic Adviser K V Subramanian said there is an “upside potential” in the estimates about the economy during the current financial year amid a faster-than-expected recovery. He said the final print could be better than GDP estimates given by various institutions, including the Reserve Bank of India, which projected contraction of 9.5 per cent during 2020-21.
Compared with the estimates provided by several of the analysts, Subramanian said, the Q2 numbers, have been more encouraging, which were being reflected in the high frequency indicators earlier as well.
Sustainability of the economic recovery depends critically on the spread of the pandemic, he said, adding that while the peak of first wave was crossed in September, winter months must warrant caution.
Giving outlook for the near future, he said, “We should be cautiously optimistic and the caution is warranted because economic impact is primarily due to the pandemic.”
Given the uncertainty, he said, it is difficult to predict if positive territory can be hit in the third or fourth quarter. “I would say that the 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 estimate given the good recovery that is happening,” he said when asked about growth estimates for the entire financial year.
As far as the second half of the current fiscal is concerned, he said there is uncertainty although there is sharp recovery especially in the manufacturing sector. “But given the uncertainty, I think it would be difficult to say whether we will hit the positive in Q3 or Q4. My sense is that we should definitely be continuing this recovery provided that the pandemic remains in control.”
With PTI inputs