Economy

GDP contraction less sharp at 7.5% in Q2, but economy in recession

Our Bureau New Delhi | Updated on November 27, 2020 Published on November 27, 2020

Agriculture sector in rescue act, again; CEA cautiously optimistic on full year growth

The contraction in the Gross Domestic Production slowed to 7.5 per cent in the July-September period even as the economy technically slipped into recession with two consecutive quarters of contraction in the current fiscal.

The GDP contraction of 7.5 per cent in July-September compares with a growth of 4.4 per cent in the same quarter last year. But the economy made a significant climb back from the 23.9 per cent contraction during the first, April-June, quarter of this fiscal.

It was once again agriculture sector to the rescue, clocking a growth of 3.4 per cent at constant prices in the quarter, according to data released by the National Statistical Office (NSO). Manufacturing grew a feeble 0.6 per cent in the quarter, but recovered from a 39.3 per cent contraction in Q1.

The Chief Economic Advisor to the government, Krishnamurthy Subramanian, while terming the recovery as very encouraging sounded ‘cautiously optimistic’ about expectations of better growth in the remaining two quarters. “It is period of uncertainty. Actual numbers (for the second quarter) are much better than expectation. It is very difficult to predict a number (for the whole year),” he said while cautioning about a fresh wave of Covid-19 as winter sets in.

 

‘Recovery process started’

Former RBI Governor C Rangarajan said the numbers broadly indicate that the economy is picking up. “Therefore, for a year as a whole I expect the contraction to be around 8 per cent. This is under the assumption that the second half of the fiscal will be as good as last year or slightly better. This is possible as agriculture will do better and manufacturing too can be better as the recovery process has started,” he said.

The tight control on expenditure, with revenue spend, excluding interest payments, declining 14.2 per cent and capital expenditure dipping 37.7 per cent as against growth of 9.7 per cent and 40.1 per cent respectively during the first quarter, also helped.

On the government consumption expenditure contracting 22 per cent during the quarter as against a growth of 16.4 per cent during the first, Sunil Kumar Sinha, Principal Economist with Ind-Ra, said: “Perhaps with the growth dwindling and revenue receipts not coming forth it was not possible for the government to sustain the expenditure. Government consumption expenditure will remain under pressure due to weak GDP growth.”

    
   
   
   

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on November 27, 2020
This article is closed for comments.
Please Email the Editor