India entered an unprecedented recession with the economy contracting in the three months to September due to the lingering effects of the shutdowns to contain the Covid-19 outbreak.
Gross domestic product fell 7.5% in the last quarter from a year earlier, the Statistics Ministry said on Friday. That was milder than an 8.2% drop forecast by economists in a Bloomberg survey, and a marked improvement from a record 24% contraction the previous quarter.
Prime Minister Narendra Modi imposed one of the world’s strictest lockdowns in March, sapping demand for non-essential goods and services. Despite measures to stop the pandemic, the country is now home to the second largest Covid-19 infections after the United States with 9.3 million cases. The second consecutive quarterly decline in GDP pushes Asia’s third-largest economy into its first technical recession in records dating back to 1996.
Financial and real estate services, which are among the most important components of India’s dominant services sector, contracted by 8.1% in the last quarter from a year ago, while commerce, hotels, transport and communications decreased by 15.6%. Manufacturing gained 0.6%, electricity and gas expanded 4.4% and agriculture grew 3.4%.
“GDP is more or less in the expected direction, although better than expected,” said Madan Sabnavis, chief economist at Care Ratings Ltd. “The fact that we are in the negative zone and will be in the next quarter is also indicative. of the difficult times ahead. “
Sovereign bonds fell on Friday before the data, with the benchmark 10-year bond yield rising 4 basis points to 5.9%, while the rupee was down 0.2% to 74.04 per dollar.
Krishnamurthy Subramanian, the government’s top economic adviser, told reporters that the figures were “quite encouraging” given the pandemic and compared to the performance of the previous quarter.
The government and central bank have worked to support the economy, with a total stimulus reaching around 30 trillion rupees ($ 405 billion), or 15% of GDP. The Reserve Bank of India, which has cut interest rates by 115 basis points this year, is due to review monetary policy next week, and the stance is expected to remain accommodative in the near future.
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For now, the stimulus, coupled with festival season demand, has helped stimulate activity in the economy, slowly helping to replace concerns about the depth of the recession in India with optimism that a recovery is taking hold.
A host of indicators, from auto sales to service sector activity, rose in October, while alternative data points to strong demand in an economy driven primarily by domestic consumption.
“Today’s GDP impression increases our confidence that the recovery is picking up pace,” said Garima Kapoor, Economist at Elara Securities India Pvt. urban demand has also started to normalize in the pre-festive period. “
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