MUMBAI: Gross domestic product (GDP) is likely to contract by 8.6% for the July-September period, which means that India will enter a recession for the first time in history in the first half of this fiscal year with two successive quarters of negative growth due to the Covid-19 pandemic, according to an RBI official.
Researchers have used the “immediate forecast” method to arrive at estimates before the data is officially released, and their views in an article in the RBI’s monthly bulletin published Wednesday do not constitute the views of the central bank.
The lockdowns induced by the pandemic had caused a sharp contraction of 23.9% of GDP for the April-June quarter compared to the same period of the previous year.
The RBI has estimated that the economy will contract by 9.5 percent for the entire fiscal year.
“India has entered a technical recession in the first half of 2020-21 for the first time in its history and the second quarter of 2020-21 is likely to record the second consecutive quarter of GDP contraction, “according to the article titled ‘Index of Economic Activity’, written by Pankaj Kumar of the Department of Monetary Policy.
However, he added that the contraction is “decreasing with the gradual normalization of activities and is expected to be short-lived.”
The index is built from 27 monthly indicators using a dynamic factors model and suggests that the economy recovered dramatically since May / June 2020 with the reopening of the economy, and the industry normalized faster than the intensive service sectors in touch, he said.
The economic activity index can be used to measure directional movements in GDP growth long before official releases, he said.
Official GDP data will be released later this month.
The article said that despite the raging pandemic, preliminary estimates are showing a jump in household financial savings at 21.4% of GDP for the June quarter, compared to 7.9% in the June quarter of 2019 and 10% in the quarter immediately prior to March 2020.
“The sharp increase is counter-seasonal and can be attributed to the Covid-19-led reduction in discretionary spending or associated forced saving and the increase in preventative saving despite stagnant / reduced income,” he said.
The estimated increase in financial saving seems consistent with other macroeconomic statistics, in particular the fall in private final consumption spending and the surplus position in the external current account, he said.
The “huge gap” between credit granted and deposits mobilized during the April-June period contributed to the rebound in household financial savings, as bank-related financial instruments continue to dominate household financial assets and liabilities, he said. .
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