GDP contracts 7.5% in Q2, India officially enters recession

GDP contracts 7.5% in Q2, India officially enters recession

New Delhi: Even though India's economic recovery accelerated in the September quarter from the lows of the pandemic-induced lockdown, the country for the very first time since Independence entered into a technical recession.

India's economy contracted 7.5% in the quarter to September, according to official data on Friday, showing some signs of a pick-up after the easing of pandemic restrictions that triggered a record contraction in the previous quarter.

The gross domestic product (GDP) had contracted by a record 23.9 per cent in the first quarter of the 2020-21 fiscal (April 2020 to March 2021) as the coronavirus lockdown pummelled economic activity. With the gradual opening up from June, the economy has picked up, according to official data released on Friday.

The National Statistical Office (NSO) data on Friday showed that the Q2FY21 GDP on a year-on-year basis contracted by (-) 7.5 per cent from (-) 23.9 per cent in the preceding quarter.

Though not comparable, the GDP had grown by 4.4 per cent in the corresponding quarter of FY2019-20.

In financial parlance, an economy is said to have entered a technical recession after it consistently remains in the negative output territory for two subsequent quarters.

This trend underscores the reduction in purchasing power along with lower tax collection for the government, likely defaults on debt and falling Capex spends.

According to the NSO, the GDP at 'Constant (2011-12) Prices' in Q2FY21 is estimated at Rs 33.14 lakh crore as against Rs 35.84 lakh crore in Q2FY20, showing a contraction of 7.5 per cent as compared to 4.4 per cent growth in Q2FY21.

"Quarterly 'GVA at Basic Prices at Constant (2011-12) Prices' for Q2 of 2020-21 is estimated at Rs 30.49 lakh crore, as against Rs 32.78 lakh crore in Q2 of 2019-20, showing a contraction of 7 per cent," the NSO said in the estimates of Q2FY21 GDP.

"With a view to contain the spread of the Covid-19 pandemic, restrictions were imposed on the economic activities not deemed essential during Q1. Though the restrictions have been gradually lifted, there has been an impact on the economic activities," it added.

Manufacturing clocked a surprise 0.6 per cent growth in July-September after it had shrunk by a massive 39 per cent in the preceding quarter.

Continuing its good showing, the agriculture sector grew by 3.4 per cent, while the trade and services sector showed lower-than-expected contraction at 15.6 per cent.

Public spending was down 12 per cent.

The GDP contraction of 7.5 per cent in July-September compares with a growth of 4.4 per cent in the same quarter last year.

China's economy grew by 4.9 per cent in July-September this year, faster than the 3.2 per cent growth in April-June 2020.

Though the contraction in July-September pushed India into its first technical recession, based on records going back to 1996, a sharp recovery held out hopes for the economy turning around before the end of the fiscal year.

Reserve Bank of India (RBI) Governor Shaktikanta Das had on Thursday stated that the recovery from the lockdown has been stronger than expected and the economy could show growth in the fourth quarter.

The improvement in the economy came ahead of next week's interest rate decision by the RBI and coincides with a drop in India's daily virus cases, which have tapered off to half of its peak of more than 97,000 infections a day in mid-September. 

(With inputs from PTI & IANS)

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