India's fiscal second quarter GDP contraction of 7.5% makes it official India is now in a technical economic recession.
The Reserve Bank of India (RBI), the central bank, forecast a contraction of 8.6% in the July to September quarter. It also said the economy would enter into a technical recession for the first time should Q2 also show a slowdown, which it now has.
The National Statistical Office on Friday said the country's GDP contracted 7.5% in the fiscal second quarter after plunging to a record low 23.9% contraction in Q1. Economists estimated the Q2 contraction to range from 5% to 9.9%. India's fiscal year begins in April and ends in March the following year.
"We think it's somewhere between 7.5% and 8% (contraction)," said Jahangir Aziz, chief emerging markets economist at JPMorgan before the GDP reveal.
"It's an improvement but it's a very, very long distance to go towards full recovery or even trying to recover the growth that has been lost in these last six months."
Compared to Q1, when GDP plummeted by a horrifically low 23.9%, the much lower Q2 headline number is being regarded by some economists as a "smart recovery." These experts cite a bevy of positive economic indicators over the past few weeks, pointing towards a recovery gathering pace.
They predicted a significantly slower Q2 deceleration due to the impact of the boost by festival consumer demand and the lifting of the strict and painful economic lockdown in June.
The lockdown led to a collapse of both private consumption and investment demand. The inevitable results were huge job and income losses that further curtailed spending and worsened the economic malaise.
Recovery was not helped by the Modi government's focus on monetary stimulus to the detriment of fiscal incentives. Delhi announced a $10 billion stimulus package in October to boost the economy, but economists said it was too paltry given the scale of the economic damage.
"While most countries responded to the pandemic with a mix of fiscal and monetary policy, India's response was largely monetary and only slightly fiscal," said Kunal Kumar Kundu, India economist at Societe Generale.
He argued the "inadequate fiscal response" resulted in the lockdown failing to flatten the infection curve. Instead, government measures likely flattened the economic recovery curve.
Despite these misfortunes, growth has again returned to agriculture, forestry, financial services, real estate, and professional services with the end of the lockdown.
On the other hand, no significant improvement is apparent in manufacturing, retail, motor vehicles, aviation, hospitality, and textiles.