GDP contracts by 7.5% in Q2 after record slump of 23.9% in Q1 – Times of India

NEW DELHI: India’s gross domestic product (GDP) for the second quarter ended September 30 contracted by 7.5 per cent, government data showed on Friday. However, this pace of contraction is considerably slower than the slump of 23.9 per cent in the previous quarter.
Even though certain green shoots are visible in the economy, India’s GDP figure has remained in negative zone for two successive quarters.
The GDP contracted by 23.9 per cent in the June quarter due to strong lockdown measures, thereby leading to expectations of the GDP growth being a negative 14 per cent for the full fiscal. However, resumption of economic activities lately may have resulted in some revisions.
The recent development on Covid-19 vaccine has boosted stock markets to repeated record highs and fueled hopes of a pick-up in economic activity. That, coupled with festive-led demand, has lifted optimism amongst economists over the past month.
However, a resurgence in coronavirus cases in some parts of the country leading to renewed lockdowns, is likely to further damage the ongoing supply-side disruptions such as transport, increasing the risk of high inflation for a prolonged period.
As some states re-imposed curbs this week to fight a second wave of infections, businesses feared the restrictions could slow the pace of recovery in the next two or three months, as well as heightening the risk of inflation.
The positive impetus in Q2 is mainly based on two factors — anticipation of a pick-up in demand during the festivals and uptick in corporate profit, which though has been more due to the cost-savings rather than top line growth.
In fact, sales growth continued to be negative in Q2 but overall numbers are positive as cost economies have been more on salary bills, power and fuel and selling expenses, combined with a drop in growth in raw material costs due to fall in sales.
According to a recently released report by the Reserve Bank of India (RBI), the economy may have entered into a technical recession for the first time with two successive quarters of contraction. The central bank expected the September quarter to post a contraction of 8.6 per cent.
However, a spate of economic indicators in the past few weeks have pointed to a recovery gathering pace and there are expectations that the third or fourth quarter may post a small positive growth.
In another set of data released, eight core industries growth came at -2.5 per cent in October against -0.1 per cent (revised from earlier -0.8 per cent) in September.
(With agency inputs)