NEW DELHI — India’s economy shrank 7.5% on the year in the July-September quarter, the country’s statistics agency said on Friday, pushing the world’s second-most populous nation into a technical recession.
The downturn in gross domestic product, however, eased from the unprecedented 23.9% contraction over the previous three months, owing to pent-up demand that analysts feel may not continue after the end of the country’s festive season.
In a Nov. 11 report, the Reserve Bank of India, the country’s central bank, projected that GDP would decline 8.6% in the July-September quarter, “implying that India is likely to have entered a technical recession in the first half of [the fiscal year beginning April] for the first time in its history with two successive quarters of GDP contraction.”
Ahead of Friday’s report, a Reuters poll of economists forecast an 8.8% contraction for the quarter.
Though the GDP data shows a slight improvement, policymakers and economists remain cautious.
“Even as the growth outlook has improved, downside risks to growth continue due to a recent surge in infections in advanced economies and parts of India,” RBI governor Shaktikanta Das said on Thursday during an annual event of the Foreign Exchange Dealers’ Association of India. “We need to be watchful about the sustainability of demand after festivals and a possible reassessment of market expectations surrounding the [COVID-19] vaccine,” he added.
Ratings agency ICRA also cautioned in a report this week that the spikes in production seen in certain sectors last month are “an exaggeration of the true recovery on the ground, as they have been driven by a large component of pent-up demand that may not sustain after the festive period is over.” India’s festival season began in mid-October and culminated on Nov. 14.
Out of 17 high-frequency economic activity indicators, ICRA said the year-on-year performance of 10 sectors — such as automobile output, thermal electricity, ports cargo traffic, domestic airline passenger traffic, and fuel consumption — rose in October, while that of vehicle registrations, non-oil merchandise exports and four other indicators deteriorated.
India had imposed the world’s largest nationwide lockdown in March, impacting over 1.3 billion people. The move brought economic activity to a grinding halt, which was reflected in the April-June GDP, the worst quarter on record. Restrictions have been eased to a great extent since June, but a renewed surge in COVID cases is being seen in Delhi and a few other states. As of Friday, India had confirmed over 9.3 million cases and 135,700 deaths.
Meanwhile, global economic forecasting company Oxford Economics observed in a Nov. 19 research note that India’s post-COVID scars could be among the worst in the world. “We forecast India’s growth equilibrium to worsen substantially over the medium term, with potential growth averaging just 4.5% over 2020-2025 in our latest baseline, as opposed to our pre-virus forecast of 6.5%,” it added.
According to Crisil Research, India’s economy has had a full-year contraction only three times before, based on available data: in fiscal 1958, 1966 and 1980. It said in a May report that the recession likely this year — which would be the fourth since independence from Britain in 1947 — “is perhaps the worst to date.”