Recession hits India - GDP contracts 7.5% in Q2

India is officially in recession. The economy has contracted for second successive quarter. India's GDP declined 7.5 per cent during the September quarter, showed government data released on Friday. Indian economy had grown at the rate of 4.4 per cent in the year-ago period.

"GDP at Constant (2011-12) Prices in Q2 of 2020-21 is estimated at Rv 33.14 lakh crore, as against Rs 35.84 lakh crore in Q2 of 2019-20, showing a contraction of 7.5 per cent as compared to 4.4 per cent growth in Q2 2019-20," said National Statitical Office (NSO) in a statement on Friday.

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"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," NSO further added.

The Reserve Bank of India, in its monthly bulletin for November, had predicted that India will enter a technical recession in the first half of the current fiscal, on account of the economic disruptions due to the coronavirus pandemic. As predicted by the central bank, and several other experts, the pace of contraction in the September quarter is considerably slower than the 23.9 per cent decline registered in the June quarter. This trend bolsters hopes that Indian economy might start on the recovery path in future, as expected.

In the first six months of the current fiscal, GDP growth declined 15.7 per cent as opposed to growth of 4.8 per cent. "GDP at Constant (2011-12) Prices for H1 (April-September) 2020-21 is estimated at Rs 60.04 lakh crore as against Rs 71.20 lakh crores during the corresponding period of previous year, showing a contraction of 15.7 per cent in H1 2020-21 as against growth of 4.8 per cent during the same period last year," NSO said.

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"Q2 GDP contraction at 7.5 per cent is way ahead of expectations. The 0.6 per cent expansion in manufacturing has come as a pleasant surprise. If this trend sustains Q3 contraction will be very low and Q4 will post positive figures. If so, the annual contraction can be around 6 per cent. Sharp expansions in H1 FY22 is on the cards. A V-shaped recovery in FY22 is in the realm of possibility. It is important to sustain the growth momentum," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

"Economic data ahead would be crucial to gauge the quantum of 'froth' in this Q2 data from pent up, festive and inventory restocking demands and to also throw more light on the employment and wage situation. How the rate of cost-cutting done in Q2 by companies to improve profits moves, the domestic COVID infection rate in the next few weeks, the situation in our major export markets and the policy support there would all mater. Most important to see would be how flat the recovery leg eventually is and thus the hit to medium-term potential growth," said Sreejith Balasubramanian, Economist - Fund Management, IDFC AMC.

"Manufacturing is at just 0.60 per cent as against an expected contraction of (-)9 per cent. This has helped the aggregate number to be better than expected. While agriculture is positive at 3.4 per cent, construction and mining remains in negative territory. H2 overall is expected to be positive, but mildly positive. So, the economic contraction is gradually slowing down. There is nothing extraordinary about the numbers but there is a clear implied reassurance of a gradual recovery ahead," said Joseph Thomas, Head of Research - Emkay Wealth Management.

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