India’s Q2FY21 GDP contracts 7.5%, technical recession confirmed | All you need to know


RBI asks HDFC Bank to stop digital launches and credit card...

The Reserve Bank of India (RBI) has asked the country's largest private sector lender, HDFC bank to stop all launches of its digital business...

Assam’s Dibrugarh University Teacher Arrested For Sharing Porn Video: Police

During interrogation, the accused confessed to the crime. (Representational)Dibrugarh: An assistant professor in Assam's Dibrugarh University was arrested today for allegedly uploading pornographic content...

Process to avail full refund on Lockdown Air Tickets

The Supreme Court approved the Directorate General of Civil Aviation's (DGCA) proposal on air tickets refund and credit shell on flights booked prior and...

Why was CDS Gen. Bipin Rawat’s attending China-owned MG Motor event;...

US Ambassador Kenneth Juster greets CDS Gen Bipin Rawat with elbow bump | Watch ...

Explained: How new H-1B visa regime will impact Indians, Indian firms

In yet another policy stance change on H-1B visa within six months, the US administration on October 6 said it was announcing an “interim...

Even though India’s economic recovery accelerated in Q2FY21 from the lows of the pandemic-induced lockdown, the country, for the very first time since Independence, entered into a technical recession. 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.

A cashier checks Indian rupee notes inside a room at a fuel station in Ahmedabad, India, September 20, 2018.Reuters

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.

The country had observed mobility restrictions as mandated under the lockdown measures for the better part of the first quarter of FY21. It was only on June 1 that partial unlock measures were implemented.

However, a contraction at this scale is unprecedented and never been witnessed since the current practice of quarterly series data dissemination began in the late 1990s. In terms of the quarterly Gross Value Added, the NSO data showed a year-on-year contraction of seven per cent from (-) 22.8 per cent in Q1FY21.

“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.

The GVA includes taxes, but excludes subsidies

On a YoY basis, Q2 GVA for 2020-21 from the agriculture, forestry and fishing sector inched lower to 3.4 per cent growth, against 3.5 per cent in the same quarter of 2019-20. The GVA in Q2 2020-21 from the manufacturing sector grew 0.6 per cent, as compared to a de-growth of (-) 0.6 per cent in the corresponding quarter of the previous fiscal.

Similarly, the mining and quarrying sector declined by (-) 9.1 per cent against previous year’s fall rate of (-) 1.1 per cent. However, the electricity, gas, water supply & other utility services sector showed a growth of 4.4 per cent from a rise of 3.9 per cent in Q2FY20.

“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,” the NSO said.

“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.”

Aditi Nayar, Principal Economist, ICRA, said: “Notwithstanding the unsavoury confirmation that India is in a recession, the GDP data provided a positive surprise. Discouragingly, the pace of contraction of two sub-sectors, financial, real estate and professional services, and public administration, defence and other services, actually worsened in Q2 FY2021 relative to the previous quarter, serving as a reminder that the path out of the pandemic may not be smooth.”

“Nevertheless, the extent of the recovery in the performance of the informal sectors in Q2 FY2021 remains unclear, and we caution that trends in the same may not get fully reflected in the GDP data, given the lack of adequate proxies to evaluate the less formal sectors.”

Sunil Kumar Sinha, Principal Economist, India Ratings and Research said:”From the supply side while most of the sectors have done as expected and continue to be in contractionary mode, the surprise of the pack is manufacturing sector which showed a growth of 0.6 per cent in2QFY21 GDP.”

Indian economy

Migrant labourers sit on a handcart as they wait for work at a wholesale market in the old quarters of Delhi, India, October 10, 2019.Reuters

“Some of the high frequency indicators such as auto sales had been indicating the pick up for a while. As the expectation was that a combination of the pent-up and festive demand will play a big role in pushing the demand, manufacturing sector geared up itself by building up the inventory through the months of August and September. The other sector that has done well is electricity, gas, water supply & other utility service.”

“From the demand side, while the consumption and investment demand shows sequential improvement, as expected, they are still in a contractionary mode on YoY basis. Surprisingly government consumption expenditure has recorded a contraction of 22 per cent in 2QFY21 as against a growth of 16.4 per cent in 1QFY21.”

Acuite Ratings & Research Chief Analytical Officer Suman Chowdhury pointed out: “The agriculture sector continues its good run with 3.4 per cent growth and the manufacturing sector has also slightly surprised with a growth of 0.6 per cent.

“Further, the electricity sector has shown a healthy trajectory with 4.4 per cent growth mainly due to a pickup in household demand and nationwide electrification. However, the services sector continued to witness significant challenges at (-) 11.4 per cent YoY particularly in financial services and in segments such as retail, hospitality and tourism.”

Source link

Latest News

India to become No 1 EV maker in world: Nitin Gadkari

The government wants to encourage automakers to introduce flex-fuel engines in India and he is in the final discussion with manufacturers, says the Union...

FPIs pull out ₹4,615 cr from Indian markets in April so far

According to the depositories data, overseas investors pulled out ₹4,643 crore from equities but invested ₹28 crore in the debt segment Foreign portfolio investors...

Insurance: Irdai cracks down on misleading ads

However, an insurance agent will not have to take written approval of the company if the advertisements are developed by the insurer and provided...

Glenmark Life Sciences Files IPO Papers With Sebi

<!-- -->Glenmark Life Sciences is the wholly-owned arm of Glenmark PharmaceuticalsGlenmark Pharmaceuticals said on Saturday that its wholly-owned arm Glenmark Life Sciences has filed...