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India's Q1 GDP data: Has India entered recession?

India, technically, has not yet entered recession, but weak investment, capital spending and consumption demand will keep negatively impacting the economy

twitter-logoBusinessToday.In | August 31, 2020 | Updated 20:02 IST
India's Q1 GDP data: Has India entered recession?
Q1FY21 GDP data

Coronavirus-hit Indian economy recorded a steep contraction of 23.9 per cent in the April-June quarter. The economy was on a downward slope even before the pandemic.

But, is India in recession? Recession is a period of temporary economic decline marked by slowdown in industrial activity and trade, generally identified by a gross domestic product (GDP) contraction in two straight quarters.

So, India, technically, has not yet entered recession, but weak investment, capital spending and consumption demand will keep negatively impacting the economy. It means the chances of contraction are high in the subsequent quarter, which will push India into recession. Subsequent quarterly announcements will also reveal if contraction is worse than 23.9% in Q1. That's because data collection too was affected due to the pandemic.

"With a view to contain spread of the Covid-19 pandemic, restrictions were imposed on the economic activities not deemed essential, as also on the movement of people from 25 March, 2020. In these circumstances, the usual data sources were substituted by alternatives like GST, interactions with professional bodies etc. and which were clearly limited," Ministry of Statistics & Programme Implementation (MoSPI) said.

The estimates are therefore likely to undergo revisions for the aforesaid causes in due course, according to the release calendar, it added.

But, Q1FY21 GDP numbers have given a broad idea about the stress on the economy as of now.

Past recessions

In the past 69 years, four such years of negative GDP growth were registered. They saw contractions of -1.2% (FY58), -3.66% (FY66), -0.32% (FY73) and -5.2% (FY80).  The reason was the same each time - a monsoon shock that hit agriculture. Interestingly, this time around, agriculture is the only sector in the June quarter to have shown positive growth.

While it's almost certain India will slip into recession, economists are now trying to figure out when will India come out of it.

India's economy is expected to bounce back in 2021 with a robust six per cent growth, International Monetary Fund (IMF) had recently predicted.

According to Dun & Bradstreet's Economic Observer released recently, the country's economic recovery will depend on the efficacy and duration of implementation of the government's stimulus package. "The multiplier effect of the stimulus measures on the economy will depend on three key aspects i.e. the time taken for effecting the withdrawal of the lockdown, the efficacy of implementation and duration of execution of the measures announced," Dun & Bradstreet India Chief Economist Arun Singh said.

Dun & Bradstreet report further said the loss in income and employment opportunities, and cautiousness among consumers, will lead to a delayed recovery in consumer demand, even after the pandemic.

RBI, in its annual report, pitched for deep-seated and wide-ranging reforms to get back on the path of sustainable growth.

The World Bank, in a report on India Development Update, 2020, cautioned that credit risks play out as firms and households find it more difficult to service their interest and repayment obligations in a slowing economy.

Also read: Worst in 24 years! India's Q1 GDP contracts 23.9% in June quarter

Also read: Worst in 24 years! India's Q1 GDP contracts 23.9% in June quarter

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