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GDP to contract 8.6% in Q2; India has entered a historic technical recession, says RBI official

The RBI has used the 'nowcasting' method to arrive at the estimates ahead of the official release of data, however, they said the economy will break out of contraction of the six months gone by and return to positive growth in the October-December quarter of 2020-21.
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India’s economy probably shrank for a second straight quarter, according to a team of economists including Michael Patra, the central bank’s deputy governor in charge of monetary policy, pushing the country into an unprecedented recession.

Gross domestic product contracted 8.6% in the quarter ended September, the Reserve Bank of India showed in its first ever published ‘nowcast,’ which is an estimate based on high-frequency data. The economy had slumped about 24% in April to June.

“India has entered a technical recession in the first half of 2020-21 for the first time in its history,” the authors wrote. The government is due to publish official statistics Nov. 27.

The pandemic-induced lockdowns had led to a steep contraction of 23.9 percent in the GDP for the April-June quarter as compared to the same period a year ago.

The RBI has estimated that the economy will contract by 9.5 percent for the full fiscal year.

“India has entered a technical recession in the first half of 2020-21 for the first time in its history with Q2 2020-21 likely to record the second successive quarter of GDP contraction,” as per the article titled ‘Economic Activity Index’, authored by Pankaj Kumar of the Monetary Policy Department.

It, however, added that the contraction is “ebbing with gradual normalisation in activities and expected to be short-lived.”

The central bank cautioned about the formidable downside risks – especially inflation — confronting the prospects of the recovery. “The foremost (risk) is the unrelenting pressure of inflation, with no signs of waning in spite of supply management measures such as the imposition of stock limits on onion traders, imports of potatoes and onions (without fumigation) and a temporary reduction in import duties on pulses,” it said in the report.

The second major risk to the economy stems from the global economy now at risk from the second wave of Covid-19. Should external demand collapse again as commodity prices seem to foretell, the recent recovery in exports could become stillborn, the RBI said.