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The Indian economy rebounded sharply from May/June 2020 with the reopening of the economy and industry normalising faster than contact-intensive service sectors, going by an Economic Activity Index for India in a Reserve Bank of India (RBI) study.
The index uses 27 monthly indicators-representing industry, services, global and miscellaneous activities to gauge the underlying state of the economy.
The index tracks GDP dynamics closely and nowcasts GDP growth at (-)8.6 per cent in Q2 (July-September):2020-21, according to Pankaj Kumar of RBI’s Monetary Policy Department.
“The contraction in the economy is ebbing with gradual normalisation in activities and expected to be short-lived,” said Kumar in an article in RBI’s monthly bulletin.
Technical recession
According to the article, India has entered a technical recession in the first half (April-September) of 2020-21 for the first time in its history with Q2:2020-21 likely to record the second successive quarter of GDP contraction.
The recent dynamics of the Economic Activity Index suggest that a gradual recovery in economic activity is underway since the April 2020 trough, with some moderation during July-September 2020, Kumar said.
The author observed that “sectoral indices declined synchronously in March and April, but have diverged in the recovery phase, with industry normalising faster than contact intensive service sectors due to continuing health risks.
“The index tracks GDP dynamics reasonably well in the sample and offers itself for consideration in the policy matrix of coincident information in India.”
The economic activity index can be used to gauge directional movements in GDP growth well ahead of official releases, Kumar said.
The sample ranges from April 2004 to September 2020. These indicators, directly or indirectly, cover a wide spectrum of domestic activities. They are released in a staggered manner throughout a month.
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