Our country’s Gross Domestic Product (GDP) estimates for the period July-September (Q2) was published on 27th November 2020. GDP is the money value of all finished goods and services produced within a country during a specific period. We had all been patiently waiting for this data, to understand how India’s economy has recovered from its horrifying 23.9% contraction in the previous quarter. As we know, the main reason for this fall had been due to strict pan-India lockdowns amidst the Covid-19 pandemic. It had caused widespread disruption of all economic activities. 

However, as the lockdown restriction was gradually removed, we could see recovery in some major sectors. This has been confirmed with the recent GDP data as well. Let us look at the key highlights of the data released by the Ministry of Statistics and Programme Implementation.

Main Highlights

  • India’s Real GDP fell to 7.5% in the July-September quarter (Q2), compared to a contraction of 23.9% in the quarter ended June (Q1). Real GDP is the GDP that has been adjusted for yearly rise in prices.
  • With the economy shrinking for two consecutive quarters, the country has officially entered into a technical recession. 
Source: Ministry of Statistics and Programme Implementation.
  • GDP at current prices was estimated at Rs 47.22 lakh crore, showing a contraction of 4.0 percent.
  • In gross value added terms (GVA), the economy contracted 7% compared to a contraction of 22.8% last quarter.

Sector-Wise Results

We had already expected a great recovery in the manufacturing sector. There were multiple data sets from various analysts which showed that industrial activity in India had improved. This was mainly due to the removal of lockdown restrictions by the Government. The agriculture sector remains at a 3.4% growth rate. The growth of all other sectors remains to be on a decline. However, these sectors have narrowed their contraction, as compared to the results of the previous quarter. 

The table below shows the sector-wise growth of India’s economy over the previous quarters:

Source: BloombergQuint

Some Noteworthy Sectoral Growth Rates

  • The mining sector contracted 9.1% in Q2, as compared to a contraction of 23.3% in the last quarter.
  • Construction contracted 8.6% in Q2 compared to a drop of 50.3% in Q1.
  • Trade, hotel, transport, and communication fell15.6% compared to a contraction of 47% in the previous quarter.
  • Electricity and other public utilities grew 4.4%, against a contraction of 7% in Q1.

Performance of Core Industries in October 2020

The data from the Ministry of Commerce show that four out of eight core industries remained in contraction in October 2020. The eight core industries comprise nearly 40.27% of the weight of items included in the Index of Industrial Production (IIP). The IIP is an index that tracks manufacturing activity in different sectors of an economy. The total output of these core sectors has dropped by 2.5% in October. This has mainly been due to a sharp decline in the production of crude oil, natural gas, steel, and refinery products. Let us take a look at these 8 core industries:

Core IndustryGrowth in OctoberSeptember Data
Crude Oil-6.2%-6%
Natural Gas-8.6%10.6%
Refinery Products-17%-9.5%
Fertilizers  6.3%-0.3

India’s Expenditure During Q2

  • Private consumption contracted 11.3% in Q2, as compared to a drop of 26.7% in Q1. This refers to the money spent by all the people of our country. With the arrival of the festive season and the removal of lockdowns, most people have increased their spending. At the same time, many people have suffered a loss of income. Such individuals would have to increase their savings and limit their consumption activities.
  • Investments contracted 7.3%, as compared to a high fall of 47.1% in Q1. These are investments made by private players into local entities and businesses in India. Over the last few months, we have seen a series of investments and acquisitions being conducted in our country.
  • Government expenditure contracted 22.2% in Q2 after growing 16.4% in Q1. The expenditure made by the Government had increased in the previous quarter due to various stimulus packages being introduced due to the Covid-19 pandemic. The Atmanirbhar 3.0 package is yet to be released to certain specified sectors. This expenditure will be reflected in the GDP results of the next quarter.

The table below shows India’s expenditure patterns over the previous quarters:

Source: BloombergQuint

An Analysis of the Data

As mentioned before, India has officially entered into a technical recession. This is because our country’s GDP has declined for two consecutive quarters. This is the first time in 41 years that India has fallen into such a recession. But, do bear in mind that our country’s economy was already in a slowdown in 2018 and 2019. GDP figures had declined even before the Covid-19 pandemic had hit.

Now, the situation in our country looks quite promising. The economy has been able to recover from its deep fall in Q1. The festive season and removal of lockdowns have led to the creation of demand. The rural sector activities have constantly remained strong in the current financial year. Manufacturing or production activities have seen a very sharp recovery. Several indicators like car sales and services activity have also shown a great improvement over the past two months. 

Even before the GDP data had been released, the RBI Governor Shaktikanta Das was confident that the economic recovery was much stronger than expected. Our policymakers have also introduced a new stimulus package to provide support to specific sectors. We could see the allotted amounts being pumped into the selected sectors in the weeks to come. It would certainly increase demand and offer more employment opportunities. The government has also made proactive efforts to ensure that imports are reduced, and domestic production is given more importance. You can read more about it here.

However, certain economists believe that these positive signs may not be enough for India to remove its current position of recession. Historic data shows us that recessions last for a few quarters. Currently, it is believed that our country could come out of recession if the spread of Covid-19 is controlled.

Despite all odds, there is high optimism that India would see positive growth in the October-December quarter (Q3). In case a vaccine is launched in our country during the next few months, we might see a much speedy recovery. Let us wait and watch for the next result and hope for some major positive changes.