GDP shrank 8.6% in Q2 pushing economy into recession: RBI

‘Oct. data brightens outlook, but formidable risks ahead on the path to recovery ‘

India’s economy rebounded sharply in the wake of the reopening from lockdowns, slowing the pace of its contraction to 8.6% in the second quarter of the current fiscal year, the RBI ‘nowcast’ in its monthly bulletin released on Wednesday.

Still, the estimate implies that India is likely to have entered a technical recession in the first half of 2020-21 for the first time in its history with two successive quarters of GDP contraction, the central bank said.

“At a time when global economic activity is besieged by the outbreak of the second wave of COVID-19… data for the month of October 2020 have brightened the near-term outlook for the Indian economy and stirred up consumer and business confidence, ”The RBI noted. “There are, however, formidable downside risks that confront the path of recovery,” it added.

As per an economic activity index, which tracks real-time data from 27 monthly indicators, the economy rebounded sharply from May / June with the reopening, with industry normalizing faster than contact-intensive service sectors, pointing to a short-lived contraction.

“The index nowcasts GDP growth at (-) 8.6% in Q2, implying that India is likely to have entered a technical recession in the first half.”

Preliminary estimates showed a jump in household financial savings to 21.4% of GDP in Q1, up from 7.9% a year earlier and 10% in the preceding quarter.

“The sharp increase … may be attributed to the COVID-19-led reduction in discretionary consultation or the associated forced saving and surge in precautionary saving despite stagnant / reduced income,” the RBI said.


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