RBI: Recession for 1st time, GDP growth negative

RBI’s Economic Activity Index estimates that India’s GDP growth for the second quarter of the current financial year was negative and the GDP contracted by 8.6 per cent during the quarter. “India has entered into a technical recession in the first half of 2020-21 for the first time in its history with Q2:2020-21 likely to record the second successive quarter of GDP contraction,” it said. The contraction is ebbing with gradual normalisation in activities and expected to be short-lived.

The Reserve Bank’s number is buoyed by cost cuts at companies that boosted operating profits even as sales dipped. The team 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, when he pledged to keep monetary policy accommodative.

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 Reserve Bank’s bulletin. They also highlighted risks to global growth from a second wave of coronavirus infections.

However, Finance Minister Nirmala Sitharaman said the Indian economy is witnessing a strong recovery after a long and strict lockdown. Addressing a press conference to announce more stimulus measures to boost growth, she said macro-economic indicators are pointing towards recovery.