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CMIE sees signs of recovery in Indian economy; says 'challenging road ahead'

CMIE sees signs of recovery in Indian economy; says 'challenging road ahead'

India's real GDP regained Rs 6.2 lakh crore of GDP it lost amid the lockdown to Rs 33.1 lakh crore in September quarter

India's GDP contracted to 7.5% in September 2020 quarter India's GDP contracted to 7.5% in September 2020 quarter

The Indian economy rebounded strongly in July-September quarter of the current fiscal as unlock process and various relief measures announced by the government helped address issues faced by the businesses amid the COVID-19 pandemic, according to an independent think tank Centre for Monitoring Indian Economy (CMIE).  

An economist at CMIE said that the unlock process that began in June 2020 helped Indian economy regain some of its lost ground in September quarter as the GDP reached the December 2017 quarter levels. India's real gross domestic product (GDP) regained Rs 6.2 lakh crore of GDP it lost amid the lockdown to Rs 33.1 lakh crore in Q2 FY21. India's real gross domestic product (GDP) regained Rs 6.2 lakh crore of GDP it lost amid the lockdown to Rs 33.1 lakh crore in Q2 FY21.  

"In the June 2020 quarter, the economy had regressed back to its six-year ago quarterly size of Rs 26.9 lakh crore following imposition of the strictest COVID-19 lockdown in the world. Within a single quarter, the economy regained Rs 6.2 lakh crore of GDP it lost amid the lockdown," said Manasi Swamy, economist at CMIE.

"While the Indian economy has bounced back strongly in the September 2020 quarter from its June 2020 quarter slump, the road ahead is challenging," Swamy added. 

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Contracting for the second consecutive quarter, India's GDP dropped to 7.5 per cent in September 2020 quarter as against the 23.9 per cent slump suffered in the June quarter, which means that India has technically slipped into a recession.  

"This recession was inevitable given the intensity of the jolt the economy received in terms of the lockdown. Also, many restrictions on functioning of the economy were lifted only gradually during the unlock process, while some remained in place even by the end of September 2020. Given these constraints, the sequential recovery the Indian economy has shown is remarkable," Swamy said.

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As per CMIE, the improvement in GDP in the September quarter over the last quarter was led by private consumption and investment demand. Private consumption expenditure increased by Rs 3.3 lakh crore to Rs 18 lakh crore from a near six-year low of Rs 14.6 lakh crore it had dropped to in the June 2020 quarter. Consumption demand was massively hit in the June 2020 quarter due to spike in unemployment, decline in household incomes, fall in spending due to the lockdown and weakening of consumer confidence amid uncertainty regarding the future. The intensity of all four reduced during the September 2020 quarter, it said.

"Both, consumption and investment demand still remain significantly lower than their year-ago levels. And, future recovery remains vulnerable to resurgence in COVID-19 cases and sustainability of the pick-up in consumption demand which contains an element of pent-up release and festive celebrations," CMIE said.