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India enters historic recession amidst the Q2 GDP results November 30 2020GDP

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GDP contraction slows to -7.5% in Q2


Gross Domestic Product (GDP) of India went on for a toss since the COVID-19 Pandemic havoc occurred. Q2 results of GDP were released on 27th of November and the economists were expecting it to be better than the previous quarter results.

India's gross domestic product (GDP) is widely projected to decline over the July-September period, but at a slower pace compared to the previous quarter, as business and economic activities pick up after the upliftment of lockdown on businesses and industrial markets in India after months of coronavirus-induced downturn. Official data which was released on , 27th November 5:30 pm showed that the economy has entered its first technical recession since 1996, when the nation started to keep quarterly records, which is two consecutive quarters of a contraction in GDP.

According to official data, the gross domestic product (GDP) contracted 7.5 per cent during the July-September period, resulting in an ongoing historic recession in the economy. The Q2 GDP data showing a fall in numbers comes after a near 24 percent contraction in the previous quarter. Although data from the latest quarter showed minor signs of a pick-up following the easing of restrictions caused by coronavirus, economists and experts have differentiated views on the same.


Expectations

Economists expected the country's GDP to contract by 8.8 percent in the quarter ended September 30. Forecasts predicted a 3% contraction in the December quarter, followed by a 0.5% expansion in the final January-March portion of the 2020-21 financial year. Meanwhile the limitations associated with COVID-19 have triggered thousands of job losses and forced much of the workforce to remain indoors which resulted into a significant blow to an already-slowing economy.

Contribution of agriculture and Manufacturing in GDP of India 2020

Agriculture raised again as predicted, recording a growth of 3.4 percent for the second consecutive quarter. But manufacturing was the surprise. Against predictions of a contraction of as much as 9 percent by some analysts, the gross value added of manufacturing showed a rise of 0.6 percent. Analysts had of course, predicted performance to show progress from a horrific first quarter. The bounce back, however, was more than expected.

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In contrast to its Asian peers, the contraction in GDP at -7.5 per cent is one of the worst. Though it is milder than what was expected by the market. This is undoubtedly a cause for concern, and perhaps some more recovery in the coming quarter can be expected with the easing of monetary policy. There is a clear need for fiscal stimulus now, considering the fact that the economy is officially in recession, as monetary policy intervention alone will not be able to help us single handedly to come out of this situation. Other fields of income for the economy has to perform well in order to gradually come out of this position.

Although the GDP report, which turned out to be better than expected, suggested that the economy may be doing well but it may not be sufficient to upgrade the FY21 forecast for a milder recession. The rising covid-19 cases in some states that may cause new limitations are a key threat in the making. The economic crosswinds are still heavy, which should keep policymakers in the next few quarters on edge.

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