India’s Q2 GDP Only A Breather, Doesn’t Call for Celebration Yet

Two consecutive quarters have shown contraction, which means India has entered technical recession.

Breaking Views: Q2 figures can be seen as a respite but for a country like India, it’s insufficient.

(Photo: The Quint)

Video Editor: Ashutosh Bhardwaj
Video Producer: Maaz Hasan

The GDP figures for the second quarter turned out to be like an election’s exit poll because economists had predicted a negative growth of 8% but the actual figures turned out to be -7.5 percent. India had witnessed a record 23.9% contraction in the previous three months ending 30 June.

With the contraction in two successive quarters, India has entered into a technical recession in the first half of the current fiscal. However, the economy substantially narrowed contraction to a single digit in Q2.

The manufacturing sector registered a 0.6 percent growth in Q2 against the contraction of 39.3 percent in the first quarter. While the recovery in the service sectors shows positive signs, the agriculture sector has also shown growth.

Too Early to Celebrate?

If we closely look at all the sectors we would find that the figures are mixed. Economists say that even though the GDP numbers are better than expectations, the worry is still not over because they feel that these figures would again stay negative.

Earlier the forecast for the FY 2020-21 was a negative growth of 10.5% but after Q2 numbers, chances are that the year might show -8% growth.

Reasons for Recovery

One of the major reasons for the recovery is the pent up demand that was created during the lockdown due to the coronavirus pandemic. The festive season sale also helped the process. Auto sales have also shown some positive signs, however, the figures show that the production is still more than the demand.

Economists also say that since several companies have reduced unnecessary expenses, which helped them to book profits, it is reflecting in the growth numbers.

Technically It’s Still Recession

Two consecutive quarters have shown contraction, which technically means that we are in the phase of recession. In Asian economies, India has shown the slowest growth rate. India is also the last in the list of 24 big economies of the world.

Experts say that the figures of government spending less is a worrying sign. Private sector investments have also reduced.

Demand for jobs under the MGNREGA scheme has considerably increased which clearly shows that the situation in the unorganised sectors is very grim.

What’s Next?

The economy is waiting for a clear strategy to combat the coronavirus pandemic so that it can run on its track. The little signs of growth that we have seen is because of some of the better steps taken by the Reserve Bank Of India.

It’s time that the government should take initiative if it wants to reach the GDP figures of the pre-corona period for which some strong steps would be required. The revenue of 11 major states have reduced by close to 20% which shows that the government doesn’t have the money to spend.

Meanwhile, the government is also hesitant in spending because there is no clarity on when the vaccine is going to come which is making them cautious. Everyone would be eyeing the next big thing – Budget 2021. Q2 figures can be seen as a respite but for a country like India, it’s insufficient.