NEW DELHI: India economy contracted for the second consecutive quarter, but the rate of decline dropped dramatically in all three period of the month ending September like the agricultural sector it remained strong as manufacturing returned to the positive zone. However, critical services segments fell for the second consecutive quarter.
Data published by the National Statistical Office (NSO) confirmed on Friday that the economy entered a recession with two successive quarters of contraction. This is the first time that the economy has recorded two successive contractions since the government began publishing quarterly GDP data in 1996.
Experts said the worst could have happened for the economy, although risks persisted, and warned of the impact of the new wave of Covid-19 infections and localized blocks of demand and growth in the coming months. For fiscal year 2020-21, the economy is expected to continue to contract, possibly in the double digits, and rebound next year as economic activity gains momentum and the impact of a series of government measures to help reactivate the economy. growth is activated.
NSO data showed the economy contracted 7.5% in the July-September quarter, the second quarter of the country’s 2020-21 fiscal year, narrower than the record 23.9% decline in the April quarter. -June. India’s economy is still in the league of the major economies that have contracted the most in the second quarter, and only the UK, which fell 9.6% in the September quarter, is worse off. China is the only large economy that registered growth in the September quarter (4.9%).
The government’s top economic adviser, KV Subramanian, said data for the second quarter was better than expected and there was upside potential, but called for caution given the new wave of infections.
The numbers showed that the reduction in the contraction was led by manufacturing, electricity, construction and agriculture. The construction sector, which had slumped to a 50.3% drop in the June quarter, showed some recovery with a decline of 8.3%. Since the government announced the lifting of the strictest blockade imposed to prevent the spread of the pandemic in June, several indicators point to a recovery and a significant tightening.
“As expected, the worst for the economy has passed. That said, the economy is not out of the woods yet and the improvement in activity going forward is likely to be affected, ”said Kunal Kundu, economist for India at the French Investment Bank Societe Generale.
“But with signs of emerging fatigue in the recent pickup in demand and the second wave of infections already affecting economic activity, we would maintain our view that fiscal year 21 real GDP would contract by 8.6%, given the likelihood of much weaker activity in the third quarter, “Kundu said. .
The manufacturing sector posted a negligible growth of 0.6% in the September quarter compared to the 0.6% contraction in the second quarter of fiscal 2020, and experts attributed this to the lifting of lockdown restrictions. The retail, hotel and transportation segments registered the greatest contraction among the sectors during the July-September period, decreasing by 15.6% annually. The service sector, which represents almost 60% of gross domestic product, contracted for the second consecutive month by 11.4%, lower than the 20.6% of the previous quarter. The sector has been the hardest hit by the pandemic, as hotels, restaurants and cinemas had been closed for the longest time and people stayed away for fear of infections.
Private consumption, a key driver of the economy, contracted 11.3% from a 6.4% expansion in the same period last year, while public consumption showed a sharp drop in growth of 22.2 % in the September quarter compared to the 16.4% growth in the June quarter. Investment growth continued to contract with gross capital formation or investments were 7.5% lower in the second quarter of fiscal year 21 compared to the prior year, according to an analysis by Care Ratings. Some experts expressed doubts about some of the sectoral figures.
“It is understandable to feel better with a lower contraction of 7.5% in the second quarter. The numbers, however, don’t add up. Low contraction of gross fixed capital formation of only 7.3% despite the decline in new projects, ongoing projects on hold, the fall in government capital spending is inexplicable. So is manufacturing growth despite slowing demand, “said former finance secretary Subhash Chandra Garg on the microblogging site Twitter.
Some economists said they expect growth to improve in the remaining two quarters of 2020-21 as economic activity improves in all sectors.
“However, the economy continues to face downward pressure, due to the sustained spread of the pandemic in the country and the re-imposition of restrictions in several regions. Consumer demand and the investments that are necessary to boost the economy would remain tepid and are unlikely to see a notable improvement over the course of the year. We expect the country’s GDP to contract between -7.7% and -7.9% in fiscal year 21, ”said Madan Sabnavis, Care Ratings chief economist.
.
