India’s Q2 GDP contracts by 7.5%, shows strong recovery from Q1’s 23.9% degrowth

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India’s economy witnessed significant improvement in the July- September quarter over the April-June quarter as gross domestic product (GDP) contracted at a much lesser than expected rate of 7.5% in the previous quarter as compared to the unprecedented contraction of 23.9% witnessed in the first quarter of FY21.

“GDP at Constant (2011-12) Prices in Q2 of 2020-21 is estimated at Rs 33.14 lakh crore, as against Rs 35.84 lakh crore in Q2 of 2019-20, showing a contraction of 7.5 percent as compared to 4.4 percent growth in Q2 2019-20,” government data showed on Friday.

Q2 GDP number is much better than the concensus estimate of economists. As per an ET Now poll economists estimated Q2 GDP to contract by 8.3%. Although technically India has slipped into a recession by showing economic degrowth for two consecutive quarters, economists are positive about the fact the the economy has rebounded sharply in the second quarter after COVID-related lockdowns were lifted.

Gross Value Added (GVA), which is measured by GDP minus tax collection, stood at -7% in Q2, showed government data. The rebound in Q2 economic growth was led by farm and allied sectors, which reported 3.4% growth over the last year. The manufacturing sector also witnessed a marginal growth of 0.6% in the previous quarter.

Mining, quarrying output stood at -9.1% while public administration, defence, other services output stood at -12.2%. Services sector, which is the biggest contributor to the economy, contracted by 11.4% as compared to 6.5% growth in the corresponding quarter of last year.

Construction sector witnessed significant rebound in Q2 as output grew at 8.6% while gas, water output stood at 4.4%. Trade, hotels, transport, communications sector witnessed degrowth of 15.6% while financing, insurance, real estate, business services output stood at negative 8.1%.

Commenting on the Q2 GDP numbers, K.V. Subramanian, India’s Chief Economic Advisor, said Indian economy had picked up momentum by February 2020 only to be halted by COVID-19. He said the contraction seen in Q1 was primarily due to stringent lockdown.

While consumer businesses saw a boost amid increased spending in the run-up to the festival season, hopes of a broader recovery were dashed, with the construction and hospitality sectors still showing degrowth.

According to RBI estimates released last month, India’s economy is expected to shrink 9.5% this year. Meanwhile, the IMF has India’s economy would contract by 10.3% this year, the biggest slump for any major emerging economy and the worst since independence.

According to core sector data for the month of October released today, eight core industrial sectors shrank by 2.5% on a yearly basis, quickening the pace of contraction seen in the last few months. Economists say the rebound seen in August and September may not sustain going forward as risks still remain.

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