India Enters Recession Phase with Negative GDP for 2 Consecutive Quarters

Reserve Bank of India (RBI) has reported that India has entered the technical recession phase based on the Gross Domestic Product (GDP) contraction observed during the July-September 2020 quarter. The regulator’s Economic Activity Index predicts that the country’s GDP growth for the second quarter of FY21 was in the negative value and that the GDP had fallen by 8.6%.

The ‘Nowcast’ Report of RBI reveals that the nation has entered into such a technical recession for the first time in history, during the first half of the fiscal year with two successive quarters of negative growth. All thanks to the COVID-19 pandemic! 

To be precise, a recession is a period of falling economic activity across an economy that sustains for months. Commentators consider a recession to be in progress when the real GDP of an economy stays south for a minimum of two consecutive quarters. Therefore, the definition ascertains that India has entered a recession at the end of September 2020. 

Several other economies across the world have been facing similar situations. The UK has entered the third quarter of recession. The economic situation in Indonesia and Brazil are not any different. While South Africa has only marginally recovered from the situation, China (the origin of the pandemic) has remained strong to outperform the trend.

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The report stated that the data for October 2020 is inducing hope to the near-term outlook of the Indian economy and boosting the confidence of consumers and businesses in India. The festival season has been the key to this confidence.

With the announcement of the lockdown in India, many economists had expressed the possibility of a recession in the country. According to the latest estimates, the recession is said to last for another quarter, i.e. October to December 2020. Finance Minister Nirmala Sitharaman has expressed that she is hopeful that India’s recession could have already been over. She also expects that the economy may see positive growth in the current quarter.

However, finding the right solution to curb the pandemic may be the significant factor to restore the economic activities to their full potential.

For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in