Indian economy further contracted 7.5% in July-September quarter

 Indian economy enters into recession and still the worst performing major economy in the world

The Indian economy has officially entered a technical recession, with two consecutive quarters of negative growth in gross domestic product (GDP). Indian economy has now entered a "technical recession" for the first time since 1947.

Real GDP for the September quarter contracted 7.5 per cent year-on-year, on the back of the steep contraction in manufacturing, construction, and services, data released by the National Statistical Office showed on November 27.

India's economy contracted between July and September, putting it among the worst-performing major advanced and emerging economies.

India's economy has contracted 7.5 percent between July and September, putting it among the worst-performing major advanced and emerging economies, as it entered a technical recession for the first time since independence, official data has shown.


Although the figures released on Friday were an improvement on the record 23.9 percent contraction recorded last quarter, they indicate that Asia's third-largest economy is in for a tough fight as it attempts to revive demand and create jobs even as coronavirus infections climb.

The pace of contraction was slower than analyst estimates. Analysts polled by news agencies Reuters and Bloomberg had expected a contraction of 8.8 per cent and 8.2 per cent, respectively, for the second quarter.

However, the data also showed that the country has begun its gradual recovery following the nationwide lockdown in April, May, and June which had flattened the economy.

The real GDP for April-June 2020 had contracted 23.9 per cent, the steepest fall ever (and the first contraction in 40 years). The July-September 2019 quarter had witnessed a GDP growth of 4.4 per cent.

Once again, the agriculture sector was the main driver of the economy. Agriculture grew 3.4 per cent year on year, the same as in the first quarter of the current fiscal year.

Manufacturing sector shows growth rate of 0.6% in July-September quarter after sharp fall of 39.3% in April-June. Electricity, water, gas and other utility services also rose 4.4 per cent after contracting by 7 per cent in April-June.

As a percentage of GDP, government final consumption expenditure contributed 10.9 per cent, lower than 18.1 per cent in April-June and 13 per cent in July-September last year, while private final consumption expenditure was 54.2 per cent of GDP, compared with 56.5 per cent in the same period last year.

But, while consumer businesses saw a boost due to increased spending in the run-up to the October-November festive season, hopes of a broader recovery were dashed, with the construction and hospitality sectors taking a hit.

Farming continued to be a relatively bright spot, while manufacturing activity also increased during the July-September period after plunging nearly 40 percent during the previous quarter due to the lockdown.

Modi government has struggled to kick-start an economy that is expected to shrink 9.5 percent this year, according to estimates released by India's central bank governor Shaktikanta Das last month.

The International Monetary Fund has meanwhile predicted that India's economy would contract by 10.3 percent this year, the biggest slump for any major emerging economy and the worst since independence.

A report by Oxford Economics released earlier this month said that India would be the worst-affected economy even after the pandemic eases, stating that annual output would be 12 percent below pre-virus levels through 2025.

India's economy had struggled to gain traction even before the pandemic, and the hit to global activity from the virus and one of the world's strictest lockdowns combined to deal the country a severe blow.

The shutdown in the vast country of 1.3 billion people left huge numbers of people jobless almost overnight, including tens of millions of migrant workers in the shadow economy.

The government has since been easing restrictions to revive activity, announcing two stimulus packages to offer farmers easier access to credit and dole out benefits to small-scale businesses.

In May, it introduced a $266 billion package to boost consumer demand and manufacturing. A large part of the package was actually loans provided by banks, many of them without collateral.

That was followed by a $35.14 billion package early this month to stimulate the economy by boosting jobs, consumer demand, manufacturing, agriculture, and exports hit by the coronavirus pandemic.

The relaxation measures have been deployed even as the coronavirus continues to ravage the country, which has registered more than 9.3 million infections – second only to the United States – and over 135,000 deaths.

                                                                 Khalid Bhatti