GDP to contract 8.6% in Q2; India has entered recession for first time, says RBI official

Mumbai: The GDP is prone to contract by 8.6 p.c for the July-September interval, which implies India will enter right into a recession for the primary time in historical past within the first half of this fiscal with two successive quarters of destructive development because of the COVID-19 pandemic, as per an RBI official.

Researchers have used the ‘nowcasting’ technique to reach on the estimates forward of the official launch of information and their views in an article in RBI’s month-to-month bulletin launched on Wednesday don’t represent the central financial institution’s views.

The pandemic-induced lockdowns had led to a steep contraction of 23.9 p.c within the GDP for the April-June quarter as in comparison with the identical interval a yr in the past.

The RBI has estimated that the economic system will contract by 9.5 p.c for the complete fiscal yr.

“India has entered a technical recession within the first half of 2020-21 for the primary time in its historical past with Q2 2020-21 prone to report the second successive quarter of GDP contraction,” as per the article titled ‘Financial Exercise Index’, authored by Pankaj Kumar of the Financial Coverage Division.

It, nonetheless, added that the contraction is “ebbing with gradual normalisation in actions and anticipated to be short-lived.”

The index is constructed from 27 month-to-month indicators utilizing a dynamic issue mannequin and means that the economic system rebounded sharply from Could/June 2020 with the reopening of the economic system, with business normalising sooner than contact-intensive service sectors, it mentioned.

The financial exercise index can be utilized to gauge directional actions in GDP development nicely forward of official releases, it mentioned.

The official GDP knowledge will likely be launched later this month.

The article mentioned regardless of the raging pandemic, preliminary estimates are exhibiting a soar in family monetary financial savings to 21.4 p.c of GDP for the June quarter, as towards 7.9 p.c within the June 2019 quarter and 10 p.c within the instantly previous March 2020 quarter.

“The sharp improve is counter-seasonal and could also be attributed to the COVID 19-led discount in discretionary expenditure or the related pressured saving and the surge in precautionary saving regardless of stagnant/diminished earnings,” it mentioned.

The estimated improve in monetary financial savings seems in line with different macroeconomic statistics, particularly the decline in personal closing consumption expenditure and the excess place within the exterior present account, it mentioned.

The “yawning hole” between credit score prolonged and deposits mobilised throughout the April-June interval contributed to the spike in family monetary financial savings because the monetary devices regarding banks proceed to dominate the family monetary belongings and liabilities, it mentioned.