Recession hits India - GDP contracts 7.5% in Q2

Marco Green
November 27, 2020

The July-September quarter gross domestic product of India was Rs 33.14 lakh crore, lower by 7.5% in relation to the previous year. The economy has contracted for second successive quarter.

The Reserve Bank of India, which has slashed its benchmark repo rate by a total of 115 basis points since March to cushion the shock from the crisis, is expected to keep rates on hold at its policy review meeting next week due to growing concerns about inflation. As predicted by the central bank, and several other experts, the pace of contraction in the September quarter is considerably slower than the 23.9 per cent decline registered in the June quarter. Another set of data released on Friday showed that the eight core infrastructure sectors of the economy saw a 2.5 per cent contraction over a the same quarter a year ago.

India's Gross Domestic Product (GDP) contracted 7.5% in the July-September period in comparison to the same period previous year, according to data released by the National Statistical Office on Friday. "However, while the Q2 GDP print was a clear positive surprise, it might be prudent to maintain caution as regards the pace of recovery in the coming months as one can not rule out frontloading of activities and production during Q2 to an extent, especially closer to the festive season".

Annual growth of 3.4% in farm sector and 0.6% in manufacturing during September quarter raised hopes of an early recovery as the government gears up to distribute coronavirus vaccines to a country with about 1.4 billion people. The positive news is that the contraction has been of a smaller magnitude.

"The contraction in the GDP at -7.5 per cent is amongst the worst as compared to its Asian peers". Sharp expansions in the first half of FY22 is on the cards.

GDP data for Q2FY21 is better than expected. In my opinion, GDP data might impress Dalal Street as it has beaten most of the street estimates.

Now the situation is improving, and the economy might be on track.

The contraction in GDP during Q2 at 7.5 percent was ahead of market expectation which was going in with a contraction of 9 percent. "Three drivers will ensure a sustained economic revival and rehabilitation; inclusive job growth, a robust services sector rebound, and a sustained recovery in private demand".

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