Economic Times | 27 Nov, 2020 | 11.03PM IST
India officially enters technical recession with two consecutive quarters of negative GDP growth. July-Sept GDP contracts by 7.5 per cent.
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Meaningful reforms by government have paved way for the economy to come back on track: PHDCCI
- With the contraction of the Indian GDP by 7.5 per cent in July to September quarter (Q2 FY21) from 23.9 per cent contraction witnessed in April-June quarter, PHD Chamber of Commerce and Industry on Friday said meaningful reforms undertaken by the government have paved way for the economy to come back on track and it looked forward to positive growth in Q3 FY 2021.
- “Meaningful reforms undertaken by the government since March 2020 is really appreciable, it paved way for the economy to come back on track,” said Sanjay Aggarwal, President, PHD Chamber of Commerce and Industry.
The worst is over for the Indian economy looking at all the indicators. We will see a continued improvement… going forward.
– Sameer Narang, chief economist at the State Bank of Baroda
More struggle ahead?
- A report by Oxford Economics released earlier this month said that India would be the worst-affected economy even after the pandemic eases, stating that annual output would be 12 percent below pre-virus levels through 2025.
- India’s economy had struggled to gain traction even before the pandemic, and the hit to global activity from the virus and one of the world’s strictest lockdowns combined to deal the country a severe blow.
- The shutdown in the vast country of 1.3 billion people left huge numbers of people jobless almost overnight, including tens of millions of migrant workers in the shadow economy.
A decisive arrest of the slide from a steep contraction in the first quarter clearly shows a sharper recovery in India’s economy which is braving the COVID-19 pandemic with strong resilience.
– Deepak Sood, Assocham Secretary General
The contraction in economy occurred despite govt’s stimulus packages
- The government announced stimulus packages after it lifted the lockdown imposed in March.
- In May, it introduced a $266 billion package to boost consumer demand and manufacturing. A large part of the package was actually loans provided by banks, many of them without collateral.
- That was followed by a $35.14 billion package early this month to stimulate the economy by boosting jobs, consumer demand, manufacturing, agriculture and exports hit by the coronavirus pandemic.
This is much better than what was anticipated by most analysts and clearly reflects that the Indian economy is on a sharp recovery mode. The positive, albeit marginal, growth noted in the manufacturing sector in the second quarter is truly encouraging.
– Sangita Reddy, FICCI President
The gross domestic product (GDP) had contracted by a record 23.9 per cent in the first quarter of the 2020-21 fiscal (April 2020 to March 2021) as the coronavirus lockdown pummelled economic activity.
RaGa hits out at Modi
Under PM Modi, India's economy is officially in a recession for the first time ever. More importantly, 3 crore peo… https://t.co/yLHOnaUbOk
— Rahul Gandhi (@RahulGandhi) 1606484707000
The sharp rebound in the second quarter GDP print to -7.5 per cent as compared to the large unprecedented -23.5 per cent decline seen in the previous quarter will boost confidence that with the easing of lockdown restrictions over the past few months, there has been a discernible improvement in the economy.
– Chandrajit Banerjee, CII Director General
While consumer businesses saw a boost due to increased spending in the run-up to the October-November festive season, hopes of a broader recovery were dashed, with the construction and hospitality sectors taking a hit.
Vedanta Chairman Anil Agarwal hails govt’s efforts
Q2 #GDP numbers show that economy is recovering. Government's efforts on stimulus and reform are showing results. H… https://t.co/M63VBmVnii
— Anil Agarwal (@AnilAgarwal_Ved) 1606484073000
Financial, real estate sector
Financial and real estate services shrank 8.1 per cent in the second quarter of FY21 from a year ago, while trade, hotels, transport and communication declined 15.6 per cent.
India’s GDP is among worst-performing major economies
- India’s economy contracted 7.5 percent between July and September, putting it among the worst-performing major advanced and emerging economies, official data showed Friday as coronavirus cases surge past nine million.
- Although the figures were an improvement on the record 23.9-percent contraction recorded last quarter, they indicate that Asia’s third-largest economy is in for a tough fight as it attempts to revive demand and create jobs.
- The two successive quarters of contraction mean that the country has now entered a “technical recession” for the first time since independence in 1947.
- After virus-led lockdowns ravaged the globe, the growth recorded by major economies including the United States, Japan and Germany during the September-ended quarter raised expectations that India would also enjoy a revival.
NITI Aayog Vice Chairman on GDP numbers
Speed of #economic recovery springs a pleasant surprise. #Manufacturing shows a positive growth which is the confir… https://t.co/JMV0anPJPE
— Rajiv Kumar (@RajivKumar1) 1606482501000
Read GDP over the years
Manufacturing, agriculture, trade & services sector
Manufacturing clocked a surprise 0.6 per cent growth in July-September after it had shrunk by a massive 39 per cent in the preceding quarter, the GDP data showed. Continuing its good showing, the agriculture sector grew by 3.4 per cent, while the trade and services sector showed lower-than-expected contraction at 15.6 per cent.
The second quarter GDP growth number is better than our expectation. While growth in most segments was along expected lines, performance of two sectors surprised on the upside – manufacturing and trade, hotels and transportation. Manufacturing is a relatively less contact-intensive activity compared to services. This could partly explain quick revival in the sector.
– Anagha Deodhar, Economist, ICICI Securities
India should be cautiously optimistic: K Subramanian, CEA
The improvement in the economy came ahead of next week’s interest rate decision by the RBI and coincides with a drop in India’s daily virus cases, which have tapered off to half of its peak of more than 97,000 infections a day in mid-September.
Food inflation expected to soften in third quarter; it is something which has to be tracked closely
– K Subramanian, CEA
Today’s GDP print increases our confidence that recovery is gaining pace and is becoming more broad-based. While during the initial period of unlocking, rural economy’s buoyancy was supportive, urban demand too has begun to normalize in pre-festive period.
– Garima Kapoor, Economist, Institutional Equities, Elara Capital
Economy, through the quarters
Q2 GDP of 2020-21 is estimated at Rs 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.
Quarterly GVA 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.
Q2 GDP numbers very encouraging
– K Subramanian, CEA
The surprise was thrown by good performance by the manufacturing sector that showed marginal growth in the second quarter. However, the private consumption shrank by 11.5 per cent showing that bounce back in private demand is still some time away.
Manufacturing GVA grew 0.6 per cent growth compared to a contraction of more than 39 per cent in the first quarter. Electricity grew at 4.4 per cent while agriculture grew at more than 3 per cent.
Indian economy shrinks 7.5% in Q2; officially enters recession
Real GVA contracts by 7%
October eight core industries output at -2.5% vs -0.1% in September YoY, and -5.5% in Oct’19
- Coal: 11.6 per cent.
- Crude Oil: – 6.2 per cent.
- Natural Gas: – 8.6 per cent.
- Refinery Products: – 17.0 per cent.
- Fertilizers: 6.3 per cent.
- Steel: – 2.7 per cent.
- Cement: 2.8 per cent.
- Electricity: 10.5 per cent.
Data for September 2020 revised to -0.1% vs -0.8% reported last month
April-Oct Core sector growth at -13%
India’s fiscal deficit reaches 119.7% of FY21 target in April-October period.
Deficit at Rs 9.53 lakh crore, 119.7% of Rs 7.96 lakh crore budget aim.
Closing Bell: Sensex sheds 110 points, Nifty ends at 12,969
After witnessing a decline of 23.9% in real GDP in Q1 FY21, we expect Q2 GDP growth at -10.7% (earlier: -12.5%) with positive bias, based on our ‘Nowcasting’ model with 41 high frequency indicators, associated with industry activity, service activity, and global economy.
– Soumya Kanti Ghosh, SBI Group chief economic adviser
The yearly SBI Composite Index reached a 19-month high of 53.9 (reflecting moderate growth) this month, compared to 53 in October.
The monthly index has touched an all-time high of 62.1 (reflecting high growth) in November, from 59.3 in October, the report’s author pointed out.
India economic recovery faster than anticipated; Q2 GDP contraction seen shallower at -8.3%: ET Now poll.
The Indian economy may have lost close to Rs 20 trillion ($270bn), 10.6% of its GDP between April and Sept 2020 due to mobility restrictions. Even as economic activity appears to be gradually returning to pre-COVID levels but we expect India’s real GDP to contract 10.5% in FY21.
A UBS report has said.
We expect the government to maintain spending in FY22 and increase allocation towards public health and infrastructure spending to support growth. A greater focus on privatisation could be explored to help keep a check on fiscal slippage.
– UBS report
India’s informal sector was also hit hard by the pandemic, which dampened the overall growth recovery as this sector faces harsher financial and cash-flow struggles.
RBI last month said in its monetary policy statement that manufacturing, particularly consumer non-durables, and some categories of services like passenger vehicles and railway freights have gradually recovered in the second quarter, cushioned by government spending and rural demand.
The outlook for agriculture was robust as well, according to the central bank.
While we believe that overall economic contraction continued in the second quarter (July-September) of this fiscal, in all likelihood, it was less severe than in the first, and then expected. This creates an upside to our second quarter gross domestic product (GDP) forecast of -12%.
– Dharmakirti Joshi, chief economist, Crisil
GDP will be significantly better than the first quarter. My estimate is that it will be a contraction of about 5% in the second quarter. In the first two months of the first quarter, production had stopped. But since the lockdown was lifted, there has been a restart
– Pronab Sen, former chief statistician of India
GST collections also stood at about Rs 9,50,00cr in September and at over Rs 1 lk cr for the month of Oct. Air passenger traffic and railway freight data show signs of recovery as Indian economy unlocked.
Activity in India’s dominant services sector expanded in October for the first time in eight months.
The Markit India Services Purchasing Managers’ Index climbed to 54.1 last month, the highest since February’s 57.5, amid renewed increase in new work orders with business optimism also rising. It was also the sixth straight month of gains for the services gauge after hitting a record low of 5.4 in April.
Bloomberg’s needle on measuring ‘Animal Spirits’ are steady at 5, post Diwali.
This is arrived at by using the three-month weighted average to smooth out volatility in the single-month readings.
The global picture
These are the last GDP estimates before the budget . December quarter’s numbers will be released on February 26, by which time the Union Budget is likely to have been presented.
How significant are today’s numbers for the rest of the fiscal year?
The pandemic’s large-scale economic disruption has led to a drastic change in the way economists track the economy. Because GDP numbers come with a significant lag, more high frequency indicators are being used to get an idea about the latest state of economic activity.
A sharp improvement in rural wages and a healthy Rabi crop could soften the impact of lower government support in the second half the fiscal year.
Market Watch: Sensex swings between gains & losses ahead of GDP print, down 80 points.
The coronavirus carnage, in a graph
Ahead of Diwali, FM Nirmala Sitharaman announced 12 economic stimulus measures, the third tranche of Atmanirbhar Bharat, amounting to Rs 2.65 lakh crore.
- Atmanirbhar Bharat Rozgar Yojana: This new scheme incentivises job creation during pandemic. Under this scheme, if EPFO-registered establishments take in new employees without EPFO registration or those who lost jobs earlier, the government will provide subsidy.
- Emergency Credit Line Guarantee Scheme for MSMEs, businesses, MUDRA borrowers and individuals (loans for business purposes), has been extended till March 31, 2021.
- Production Linked Incentive worth Rs 1.46 lakh crore to 10 champion sectors.
- Rs 18,000 crore additional outlay for PM Awaas Yojana – Urban.
- Support for construction & infrastructure – relaxation of earnest deposit money & performance security on government tenders.
- Income Tax relief for developers and home buyers.
- Rs 6,000 crore equity investment in NIIF, platform for infra debt financing.
- Support for agriculture: ?65,000 crore for subsidised fertilisers.
- Additional outlay of ?10,000 crore is being provided for PM Garib Kalyan Rozgar Yojana to provide rural employment.
- Rs 3,000 crore boost is being provided to EXIM Bank for promoting project exports under Indian Development and Economic Assistance Scheme (IDEAS Scheme).
- Rs 10,200 Crore additional budget stimulus is being provided for capital and industrial expenditure on domestic defence equipment, industrial infrastructure and green energy.
- Rs 900 crore provided to Department of Biotechnology for research and development of Indian COVID-19 vaccine.
Atmanirbhar Bharat: Overreaching reforms or just what the doctor ordered?
- Labour and agriculture reforms, mining privatisation and indigenisation of defence production have been set in motion.
- India is also making a big push to position itself in global supply chains.
- The production-linked incentive (PLI) programme for mobile phones and electronics components attracted 16 foreign and domestic firms.
- With similar PLI programmes announced for 20 more sectors, manufacturers sense an opportunity to rebalance their production lines.
- MSMEs were also provided government-underwritten credit, which even extended to micro segments such as street vendors.
Flipkart and Amazon recorded combined sales of nearly $7.3 billion–nearly a fifth more than initially estimated–during the month-long festive season, according to market tracker RedSeer Consulting.
The two ecommerce giants together cornered an 88% share of the overall online industry sales of $8.3 billion from mid-October to the middle of November.
The importance of retail to India’s economy cannot be understated. Contributing 12% to the gross value added to overall GDP, retail is India’s third-largest sector.
Even widespread vaccination would not restore India to economic health, as tepid fiscal support and a beleaguered banking sector will weigh on economic growth long after the virus is brought under control.
– Shilan Shah, economist, Capital Economics
The economy, which must grow at more than 8% a year to create jobs for millions of young people entering the workforce, faces a prolonged slowdown, thanks to a delay in resolving a banking crisis and inadequate stimulus measures.
Can progress on coronavirus vaccines bring the economy back from the dead?
Russia’s sovereign wealth fund and Indian pharmaceutical company Hetero have agreed to produce over 100 million doses per year in India of the Sputnik V vaccine against COVID-19.
This, in addition to Serum Institute’s tie-up with AstraZeneca to produce Oxford’s coronavirus vaccine.
Effective widespread distribution of vaccine could help speed economic recovery next year.
– Shilan Shah, economist, Capital Economics
We forecast a gradual improvement in economic activity over the coming quarters. However, slow credit intermediation will hamper the pace of recovery because of an already weakened financial sector.