India in a ‘historic recession’, RBI predicts 8.6% GDP contraction

“India has entered a technical recession in the first half of 2020-21 for the first time in its history,” said the report..

New Delhi: After the unprecedented decline of 23.9 percent in the gross domestic product (GDP) in the April-June quarter, an estimate by the Reserve Bank of India (RBI) suggests that the economy has contracted yet again, pushing the country into a ‘historic technical recession’.

However, the report indicated that the pace of contraction of GDP eased to 8.6 percent in the quarter that ended in September. 

In its first-ever published ‘nowcast’ — an estimate based on high-frequency data, the team of economists including Michael Patra, the central bank’s deputy governor in charge of monetary policy– indicated that the Indian economy shrank for the consecutive second quarter.

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“India has entered a technical recession in the first half of 2020-21 for the first time in its history,” the authors wrote.

Bloomberg’s median forecast by economists predicted a contraction of 10.4 percent in the July- September quarter. The RBI is to release the official figures on November 27.

The RBI’s predictions are supported by the cost cuts by the companies, which resulted in a sharp rise in operating profits even while the sales dipped.

The team of economists also used a range of indicators from vehicle sales to flush banking liquidity to signal brightening prospects for October. If this upturn is sustained, the Indian economy will return to growth in the October-December quarter, earlier than projected by Governor Shaktikanta Das last month, the bulletin opined.

Challenging times: RBI

However, “there is a grave risk of generalization of price pressures, unanchoring of inflation expectations feeding into a loss of credibility in policy interventions,” the team of economists wrote in the RBI’s bulletin. They also highlighted risks to global growth from the second wave of COVID-19 infections.

“Lurking around the corner is the third major risk — stress intensifying among households and corporations that has been delayed but not mitigated, and could spill over into the financial sector,” the economists concluded. “We live in challenging times.”

Taking this report into consideration, Congress leader Rahul Gandhi slammed the Narendra Modi-led government over the state of the Indian economy. “Mr. Modi’s actions have turned India’s strength into its weakness,” Rahul Gandhi said on Twitter.

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