Though for the second successive quarter India’s economy contracted yet the pace of decline narrowed sharply especially in the last three months ending in September considering the positive turn around and profits made in the manufacturing sector and farming. Both the sectors have shown a lot of improvement and have strengthened the economy in last few months. However, services fall for the second quarter rapidly in a row.
India has entered ‘Recession’ for the first time in history.
Don't mislead the nation by a Q2 FY21 with a GDP growth of -7.5% by comparing it against Q1: -23.9%
Comparison is against Q2 FY20 GDP growth rate of 4.4% tells us the state of economyhttps://t.co/h53NLWtFeM
— Randeep Singh Surjewala (@rssurjewala) November 27, 2020
National Statistical Organisation (NSO) released its data on friday confirming that Indian economy have plunged into recession followed by two consecutive contracting quarters. This is happening for the first time in the history that the economy posted two successive contractions since government of India published its first quarterly GDP in 1996. Economists and experts have confirmed that the worst is over for the Indian economy as of now but showed non-conformity on the risks in the future. They cautioned people about the effects of the Covid19’s fresh wave infections upsurged and also about the demands raising for localised lockdowns. Economist’s predictions have come double handed as they predicted that this fiscal year of 2020-21 could experience contraction in economy in double digits. They also have predicted for rebound in the upcoming fiscal year and possibilities in economy to gather stability, momentum and growth through government’s help.
The NSO released data showed the contraction of 7.5% in the July-September quarter which is the second quarter of the country’s 2020-21 fiscal year more narrower than the first quarter April-June (23.9%). India still remains in the list of larger economies which have contracted the most in the second quarter, with only the UK which declined 9.6% in the September quarter, faring worse. China from where it all started, posted growth in the second quarter stands out as the only country in the world to show growth with (4.9%).
“Looking at the data posted by NSO for the second quarter, there is a possibility and potential for the upside and data shown was better than expected”, the government’s chief economic adviser KV Subramanian said and cautioned people of second wave of infections. The narrowing in the contraction showed by the manufacturing sector, electricity, construction and agriculture sectors. Several indicators have pointed to a recovery and significant narrowing in the economy some includes lifting of strictest lockdowns as well.
Kunal Kundu, India economist at French investment Bank Societe Generale said, “Expectedly, the worst for the economy is over. That said, the economy is still not out of the woods and the improvement in activity from here onward would likely be laboured.”
He added furthermore, “But with signs of emerging fatigue in recent demand uptick and the second wave of infections already impacting economic activity, we would retain our view of FY21 real GDP contracting by 8.6%, given the likelihood of a much weaker third quarter activity.”
The manufacturing sector posted a steep growth of 0.6% in the second quarter as compared to 0.6% contraction in the second quarter of the FY20, experts attributed it to the lifting of lockdown restrictions in the country. The areas where highest contraction have been registered are the trade, hotels and transport segments made a huge impact on the economic activities during July-September quarter declining annually by 15.6%. With 60% of GDP’s contribution, service sectors contracted for the second successive month by 11.4% narrower than the 20.6% in the previous quarters. The contraction in the service sectors was born die the restrictions the centre imposed on using hotel, restaurants, Cinema Halls for the longest time to maintain social distancing norms.
Former finance secretary Subhash Chandra Garg said on micro-blogging site Twitter, “It is understandable to feel better at lower contraction at 7.5% in Q2. Numbers, however, don’t add up. Low gross fixed capital formation contraction at only 7.3% despite down new projects, ongoing projects on hold, govt capex down is inexplicable. So is manufacturing growth despite demand slowdown.”
Madan Sabnavis, chief economist at Care Ratings said, “The economy however continues to face downward pressure, from the sustained spread of the pandemic in the country and the re-imposition of restrictions in various regions. Consumption demand and investments which are necessary to propel the economy would continue to be tepid and is unlikely to see a noteworthy improvement during the course of the year. We expect the country’s GDP to contract by -7.7% to -7.9% in FY21.”
Looking at the glare, Congress leader Rahul Gandhi targeted the Central Government and especially PM Modi Tweeted, “Under PM Modi, India’s economy is officially in a recession for the first time ever.”
Under PM Modi, India's economy is officially in a recession for the first time ever.
More importantly, 3 crore people are still looking for work under MNREGA.
Economy cannot be ordered to grow by diktats. PM needs to first understand this basic idea.
— Rahul Gandhi (@RahulGandhi) November 27, 2020
He also added, “More importantly, 3 crore people are still looking for work under MNREGA. Economy cannot be ordered to grow by diktats. PM needs to first understand this basic idea.