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India’s GDP contracts 7.5% in Q2FY21, enters technical recession
Nov-28-2020

With pick-up in manufacturing, India's economy recovered faster than expected in the September quarter (Q2) of fiscal year 2020-21 (FY21). The Gross Domestic Product (GDP) clock a lower contraction of 7.5 per cent as compared to the contraction of 23.9 per cent in the first quarter of the 2020-21 fiscal (April 2020 to March 2021). This held out hopes for further improvement on consumer demand bouncing back. The economy had showed a growth of 4.4 per cent in the Q2FY20. Though, the second straight quarter of contraction pushed India to its first technical recession.

As per provisional estimates released by the Ministry of Statistics and Programme Implementation (MoSPI), with the gradual opening up from June, the economy has picked up. 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.

The construction sector, which is the second-largest employer in the economy, contracted only 8.6 per cent in Q2 versus (-) 50 per cent in Q1. Financial and real estate services shrank 8.1 per cent in the second quarter of FY21 from a year ago, while trade, hotels, transport and communication declined 15.6 per cent. Public spending was down 12 per cent. In the first half (H1FY21), India’s GDP contracted by 15.7 per cent compared to a growth of 4.8 per cent in the same period last fiscal. 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.

The National Statistical Office (NSO) said GDP at Constant (2011-12) Prices in Q2 of 2020-21 is estimated at Rs 33.14 lakh crore, as against Rs 35.84 lakh crore in Q2 of 2019-20, showing a contraction of 7.5 percent as compared to 4.4 percent growth in Q2 2019-20. It noted that 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 economic activities. In these circumstances, some other data sources such as GST, interactions with professional bodies, etc. were also referred to for corroborative evidence and these were clearly limited.
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