Key points:
- India’s economy possibly shrank for a second straight quarter, dragging the nation into an unprecedented recession.
- From April to June, the economy slumped by about 24 per cent.
- Official statistics are scheduled for publication by the government on Nov. 27.
- The number of the Reserve Bank is helped by cost savings in industries, which boosted operating profits even as revenues slipped.
- As millions lost their jobs, consumers cut back on expenditure, choosing instead to squirrel away money.
According to a committee of economists, including Michael Patra, the central bank’s deputy governor in charge of monetary policy, India’s economy possibly shrank for a second straight quarter, dragging the nation into an unprecedented recession.
GDP contracted 8.6% in the quarter ended in September:
In the section ended September, the Reserve Bank of India showed in its first-ever released ‘nowcast,’ which is an estimation based on high-frequency data, gross domestic product contracted 8.6 per cent. From April to June, the economy slumped by about 24 per cent.
India in a technical recession:
“For the prime time in its history, India has entered a technical recession in the first half of 2020-21,” the authors wrote. Official statistics are scheduled for publication by the government on Nov. 27.
In the July-September quarter, the median forecast in a Bloomberg survey of economists sees a contraction of 10.4 per cent.
Indian economy may return to growth during the October-December quarter:
The number of the Reserve Bank is helped by cost savings in industries, which boosted operating profits even as revenues slipped.
A number of measures from vehicle sales to flush banking liquidity were also used by the team of authors to signal brightening perspectives for October.
The Indian economy will return to growth in the October-December quarter of this upturn persists, sooner than Governor Shaktikanta Das had expected last month when he committed to keep monetary policy accommodative.
The economist’s team in the bulletin:
However, the team of economists wrote in the Reserve Bank’s bulletin, “there is a significant risk of generalizing price pressures, unanchoring inflation expectations, feeding into a lack of credibility in policy interventions.”
They also highlighted threats from the second wave of coronavirus infections to global development.
‘Times Challenging’
“The third major risk is waiting around the corner — intensifying tension among households and companies that have been postponed but not mitigated and could spill over into the financial sector,” summarized the economists. “In hard times, we work.”
As millions lost their jobs, consumers cut back on expenditure, choosing instead to squirrel away money. A leap in household financial savings to 21.4% of GDP in April-June, up from 7.9% in the same timeframe a year ago and 10% in January-March, was seen in preliminary estimates published in the central bank’s bulletin. Bank deposits are the bulk of these savings.
Sanjay Kumar Hansda, Anupam Prakash, and Anand Prakash Ekka of the RBI wrote, “The pattern of higher than usual household financial savings will continue for some time until the pandemic recedes and consumption levels become normalized, adding that this may taper as the virus curve flattens and economic activity revives.”
