India's GDP shrinks 24% in second quarter
01 September, 2020
India's economy shrank by practically 25 % between April and June, a lot more than forecast and pointing to an extended than previously expected recovery with analysts calling for further stimulus.
Consumer spending, private investments and exports all collapsed through the world's strictest lockdown imposed in late March to combat the Covid-19 pandemic and India - the world's fastest-growing large economy until a couple of years ago - now looks to be headed because of its first full-year contraction since 1980.
Gross domestic product shrank by a record 23.9 % in April-June from a year earlier, official data showed on Monday, compared with a Reuters poll that forecast an 18.3 per cent contraction.
Krishnamurthy Subramanian, chief economist at the Ministry of Finance, said India's economy was set for a "V-shaped" recovery and should perform better within the next few quarters as indicated by a pickup in rail freight, power consumption and tax collections.
Some private economists, however, said the fiscal year that began in April could visit a contraction of practically 10 per cent, the worst performance since India won independence from British colonial rule in 1947, which is likely to push millions more into poverty.
"Given the limited fiscal space and the need to stimulate a more durable growth, the growth recovery will be gradual and will probably continue into [the first half of fiscal 2022]," said Suvodeep Rakshit, senior economist at Kotak Institutional Equities, Mumbai.
Consumer spending - the main driver of the economy - dropped 31.2 % year-on-year in April-June in comparison to a 2.6 % fall in the last quarter, data showed, while capital investments were down 47.9 %, compared to a 2.1 per cent rise in the previous quarter.
Prime Minister Narendra Modi announced a $266 billion (Dh977bn) stimulus package in May, including credit guarantees on loans and free food grains for poor people, but consumer demand and manufacturing have yet to recuperate.
The Reserve Bank of India, which includes reduced the benchmark repo rate by a complete of 115 basis points since February, is likely to cut interest rates to improve growth after keeping them on hold this month amid rising inflation.
The coronavirus has been spreading in India faster than somewhere else in the world, with an increase of than 3.6 million people already infected and a death toll of over 64,400.
Continuing restrictions on transport, educational institutions and restaurants have hit manufacturing, services and retail sales, while keeping an incredible number of staff out of jobs.
Manufacturing has already entered recession as output fell 39.3 per cent in April-June after falling 1.4 % in the last quarter, and construction and trade services plunged by around 50 %.
With an total annual growth of 3.4 % in the April-June quarter, the farm sector, which makes up about 15 % of monetary output, offered some hope the rural economy should be able to support an incredible number of migrant workers who've returned with their villages.
Still, Rupa Rege Nitsure, group chief economist at L&T Financial Holdings, said the federal government will have to take more steps to boost the economy.
"Unless the central and state governments focus on restarting the monetary machine completely, the true procedure for repair and reconstruction won't gain momentum," she said.
Source: www.thenational.ae