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GDP Contracts For First Time In Over Four Decades - Posted on: 01-09-2020


The data comes as the government is strategically removing restrictions imposed in March to curb COVID-19 infections, which have caused a big blow to an already-slowing economy.

India's gross domestic product or GDP contracted 23.9 per cent in the April-June period  much worse than economists' estimates, official data showed on monday, as the coronavirus pandemic brought key industries to a halt and rendered millions of people jobless. That marked the worst incidence of negative growth for the economy since 1996, when India began publishing quarterly figures, and also the worst among major Asian economies. The reading - which fully captures the impact of the COVID-19 crisis on economic and business activity - is in stark contrast with expansion of 3.1 per cent in the previous quarter, and 5.2 per cent in the quarter ended June 30, 2019.

Here are the important things to know:

  1. The data marks the likely onset of India's deepest recession on record, which is widely expected to run through the second half of the fiscal year, as the rapid spread of the pandemic continues to weigh on demand, hindering a pickup in economic activity. Typically, recession is defined as two consecutive quarters of decreasing GDP.

  2. In financial services - the biggest component of the country's services sector, GDP shrank 5.3 per cent compared to the corresponding period a year ago. In manufacturing and construction, it fell 39.3 per cent and 50.3 per cent respectively. Agriculture bucked the trend, with an expansion of 3.4 per cent.

  3. Though the coronavirus-related restrictions have been gradually lifted, there has been an impact on the economic activities as well as on the data collection mechanisms, the government's statistics office said. Challenges related to other underlying macroeconomic indicators such as industrial production and consumer inflation will also have implications on these estimates, it said, mentioning likely revisions "in due course".

  4. The data comes as the government is strategically removing restrictions imposed in March to curb COVID-19 infections, which have caused thousands of job losses and forced the majority of workforce to stay indoors, leading to a big blow to an already-slowing economy.

  5. Chief Economic Adviser Krishnamurthy Subrahmanian said, "India was in a lockdown all through April to June quarter with majority of  economic activities being restricted. So this trend is along expected lines. Core sector output is clearly showing a V-shaped recovery."

  6. COVID-19 is spreading faster in India than anywhere else in the world, as daily tallies have exceeded those of the US and Brazil for almost two weeks. India currently has more than 3.54 million cases, and 63,498 deaths.

  7. Economists say the rapid increase in COVID-19 cases amid stretched public finances and soaring inflation means a recovery may not take place soon. Some say the economy could see a contraction of nearly 10 per cent in the year through March 2021.

  8. In May, PM Narendra Modi announced a stimulus package equivalent to 10 per cent of GDP - including credit guarantees on bank loans and free food grains to the poor - but consumer demand and manufacturing have yet to recover. Many economists have said that much of that support was already budgeted for by the government and very little included new spending. 

  9. Just before the pandemic, the government was aiming at transforming the economy, from an estimated $2.8 trillion, to $5 trillion by 2024, despite slowing growth and low demand.

  10. The Reserve Bank of India has reduced the key interest rates by 115 basis points (1.15 percentage point) since March to revive the economy, but is watchful of worsening inflationary pressures. It has already shifted gears to focus on economic health for the time being, instead of inflation.

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