India's Q2FY21 GDP contracts 7.5%, technical recession confirmed

India's Q2FY21 GDP contracts 7.5%, technical recession confirmed

Two weeks after a team of Reserve Bank of India (RBI) economists said India is in a technical recession, Gross Domestic Product (GDP) data released on Friday officially confirmed the same. The GDP contracted 7.5 per cent in the July-September quarter of 2020-21.

The official GDP data released for the second quarter (Q2) today by National Statistical Office (NSO) showed that the Indian economy has contracted in two consecutive quarters -- called technical recession for the first time since 1996, when the country began recording quarterly growth rates.

The GDP at constant (2011-12) prices in Q2FY21 has been 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, according to the official NSO data.

"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," it added.

Commenting on the Q2 GDP data, Chief Economic Advisor K Subramanian said, "Our economy is doing well. Our economy was doing well before the pandemic hit us. The pandemic hit us in March and that was the reason for Q1 GDP number coming at -23.9 per cent."

Commenting on the Q2 GDP data, Sreejith Balasubramanian, Economist - Fund Management, IDFC AMC, said, “India’s Q2 FY21 real GDP contraction of 7.5% y/y was in line with our forecast and the recent improvement in economic data.”

“As expected, manufacturing growth was strong with the y/y number turning positive, alongside agriculture, but services (including public administration in line with the y/y fall in Q2 government spending) and construction growth was still negative,” he added.

He, however, said 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,” Balasubramanian added.