New Delhi: The Indian economy is expected to narrow the pace of its contraction and decline by 8-11 per cent in the second quarter of 2020-21, aided by a pick-up in economic activity towards September.
The Indian economy had contracted by a record 23.9 per cent in the April-June quarter as the nationwide lockdown due to the Covid-19 pandemic had brought economic activities to a near-halt.
However, in the subsequent months, the gradual re-opening has seen activities resume with many high-frequency indicators showing revival in some sectors. The demand surge seen during the festive season has also aided recovery.
The better-than-expected recovery has also led to hopes that the economy may break out of a recession in the October-December quarter, rather than the January-March quarter, and register a positive growth.
However, even as India crossed its Covid-peak in mid-September, the surge in infections in the last few weeks again poses a risk.
Technical recession
The National Statistical Office will release India’s July-September GDP numbers Friday evening. In the second quarter, sectors like agriculture and financial services are expected to register positive growth while manufacturing, construction, and trade and transport sectors are likely to improve, but continue to register output losses.
In a state of the economy review presented earlier this month, the Reserve Bank of India had forecast that the Indian economy is likely to contract by 8.6 per cent, entering into a ‘technical recession.’
The term technical recession is used when an economy contracts for two consecutive quarters.
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What economists say
State Bank of India’s economic research arm forecast that the GDP growth in the second quarter may be at -10.7 per cent. It pointed out that the economy has “suffered and scarring remains” but added that various economic indicators point to continuous improvement and the numbers for the October-December quarter are expected to be even better.
“Future prognosis will depend on two things — the shape of the recovery from COVID infections and how fast the vaccine is rolled out. The current trends of COVID-19 infection show that COVID cases in India peaked in September. With Unlock 5.0 and festival season till December end, the chances of a possible second wave will increase,” said the note dated 19 November authored by Soumya Kanti Ghosh, Group Chief Economic Advisor at SBI.
It added that a recovery post-Covid will be contingent on how fast the vaccine is rolled out and consumer confidence is restored.
Barclays India expects GDP to contract 8.5 per cent in the quarter. “While the farm sector remained the bright spot, supported by a good monsoon season and subsidised inputs, we think the recovery likely spread wider across the economy and is on the verge of becoming entrenched. A variety of high frequency indicators across sectors document the economic recovery underway. Manufacturing PMI has hit a decade high, while electricity and fuel consumption are now back to pre-COVID levels.
Indirect tax collections have resumed with renewed vigour, reaching all-time highs, while construction activity has restarted..,” said Rahul Bajoria, Chief Economist at Barclays India, in a report dated 19 November.
Care Ratings has forecast a -9.9 per cent contraction in the quarter citing two factors working together in anticipation of a pick up in demand ahead of the festive season.
“The first was the companies enhancing production in preparation for the pent-up demand expected given that consumption was subdued in the first 4 months of the financial year. The second has been an uptick in profits of the corporate sector which has been more due to the cost-savings invoked rather than top line growth. In fact, growth in sales continues to be negative during this period,” it said in a report dated 23 November.
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