India’s economy likely contracted for the second consecutive quarter, according to a team of economists that included Michael Patra, the central bank’s deputy governor in charge of monetary policy, pushing the country into an unprecedented recession.
Gross domestic product contracted 8.6% in the quarter ending September, the Reserve Bank of India showed in its first published ‘immediate report’, which is an estimate based on high-frequency data. The economy had plummeted about 24% between April and June.
“India entered a technical recession in the first half of 2020-21 for the first time in its history,” the authors wrote. The government is due to publish official statistics on November 27.
The Reserve Bank’s number is driven by cost cuts at companies that increased operating profit even as sales fell. The team of authors also used a series of indicators, from vehicle sales to bank liquidity, to point out prospects for improvement for October. If this recovery continues, the Indian economy will grow again in the October-December quarter, earlier than was projected by Governor Shaktikanta Das last month, when he promised to maintain accommodative monetary policy.
However, “there is a serious risk of generalization of pressures on prices, dislodging inflation expectations, fueling a loss of credibility in policy interventions,” the team of economists wrote in the Reserve Bank bulletin. They also highlighted the risks to the global growth of a second wave of coronavirus infections.
“Lurking around the corner is the third major risk: stress is intensifying among households and businesses, which has been delayed but not mitigated and could spread to the financial sector,” the economists concluded. “We live in challenging times.”
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