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India officially enters recession with 7.5% shrink in economy

Ipshita Bagchi

India enters recession

The Covid-19 pandemic and the consecutive lockdowns between March and June have taken a serious hit on the Indian economy. However, despite the lockdowns being lifted, India continues to be one of the worst-hit major economies during the July-September period.

India’s economy contracted by 7.5% year-on-year in the September quarter, officially pushing the country into a recession. Among other major economies of the world, UK and Spain are the only economies that hit a rock worse than India. Official data showed on Friday that the country entered a technical recession for the first time since independence.

Though the contraction in India’s economy has eased in comparison to the first quarter of the financial year 2020, data suggests that Asia’s third-largest economy is in for an unprecedented challenge as it attempts to revive demand and create new jobs even as the COVID-19 virus surges.

For this reason many sectors continue to battle severe distress. India's consumer business saw a sudden boost in the months leading up to the festive season (October-November) which prompted a broader and better recovery, while sectors like construction and hospitality took a hit.

The primary sector continued to give promising returns while manufacturing activity also increased during the July-September period. However, the state of the agricultural sector remains uncertain keeping in mind the recent events surrounding the controversial Farm bills.

Also read: Farm laws: Where does the Crop of Contention lies?

The service sector, including finance, real estate, professional services, public administration, and defense were also deep in the negative quadrant.

Indian economists on the recession

Kunal Kundu, economist (India) at Societe Generale Global Solution Centre Pvt, is of the view, "While farm sector growth was in line with our expectation, it appears that substantial inventory building in anticipation of pent-up and festival period-led demand provided a boost to the manufacturing activity.”

“That said, we believe that a rather low GDP deflator has resulted in higher-than-expected real GDP growth. But with signs of emerging fatigue in recent demand uptick and the second wave of infection already impacting economic activity, we would retain our view of FY21 real GDP contracting by 8.6%, given the likelihood of a much weaker third-quarter activity."

Further, Sameer Narang, chief economist at the State Bank of Baroda stated, "The worst is over for the Indian economy looking at all the indicators. We will see a continued improvement... going forward.”

Economist Vivek Kumar of QuantEco Research said, "India’s recovery is led by manufacturing and not services sector and a similar trend is seen in all major economies. Even before Covid-19, manufacturing was struggling a bit so these are encouraging signs."

International reports on India's recession

Meanwhile, the International Monetary Fund has predicted that India’s economy would contract by 10.3pc this year. This would mark the biggest slump for any major emerging economy.

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

India imposed one of the world's strictest lockdowns to curb the COVID-19 pandemic. Due to this, a country with the population of 1.3 billion people rendered countless people jobless and homeless. This number also included tens and thousands of migrant workers. Since the first phase of the lockdown, the Indian government has eased restrictions to revive and rebuild the Indian economy.

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