India in historic technical recession in first half of 2020-21, says RBI bulletin

The pace of contraction, however, shrinks to 8.6%, says RBI as Rahul targets govt

Upgrading India's rating outlook from negative, Moody's expects the debt burden to stabilise at around 91 per cent. Photo: Representative image

India’s economy probably shrank for a second straight quarter, according to a team of economists including Michael Patra, the RBI’s deputy governor in charge of monetary policy, pushing the country into an unprecedented recession.

But the economy rebounded sharply in the wake of the reopening from lockdowns, slowing the pace of its contraction to 8.6% in the second quarter, ‘Nowcast’ in the RBI’s monthly bulletin showed on Wednesday.

Congress leader Rahul Gandhi on Thursday attacked PM Modi over reports that, for the first time in history, the India economy had entered technical recession in the first half of 2020-21.

In a tweet today, Gandhi posted screen shots of a newspaper report about the economic downturn to make his point.


The Gross Domestic Product contracted 8.6 per cent in the quarter ended September, the Reserve Bank of India showed in its first ever published ‘Nowcast,’ which is an estimate based on high-frequency data. The economy had slumped about 24 per cent in April to June.

Also read: RBI is faced with a ‘trilemma’ as economy shrinks, inflation rises

“India has entered a technical recession in the first half of 2020-21 for the first time in its history,” the authors wrote. The government is due to publish official statistics on November 27.

The Reserve Bank’s number is buoyed by cost cuts at companies that boosted operating profits even as sales dipped. The team of authors also used a range of indicators from vehicle sales to flush banking liquidity to signal brightening prospects for October. If this upturn is sustained, the Indian economy will return to growth in the October-December quarter, earlier than projected by Governor Shaktikanta Das last month, when he pledged to keep monetary policy accommodative.

However, “there is a grave risk of generalization of price pressures, unanchoring of inflation expectations feeding into a loss of credibility in policy interventions,” the team of economists wrote in the Reserve Bank’s bulletin. They also highlighted risks to global growth from a second wave of coronavirus infections.

Also read: Economy recovering on govt interventions, waiting for firm signs: FM

“Lurking around the corner is the third major risk — stress intensifying among households and corporations that have been delayed but not mitigated, and could spill over into the financial sector,” the economists concluded. “We live in challenging times.”

bulletin. They also highlighted risks to global growth from a second wave of coronavirus infections.

The pandemic-induced lockdowns had led to a steep contraction of 23.9 per cent in GDP for the April-June quarter as compared to the same period a year ago. The RBI has estimated that the economy will contract by 9.5 per cent for the full fiscal year, according to PTI.

The article, however, has said that the contraction in the economy is “ebbing with gradual normalization in activities and expected to be short-lived”.

“The index nowcasts GDP growth at (-) 8.6% in Q2, implying that India is likely to have entered a technical recession in the first half,” Pankaj Kumar of the RBI’s Monetary Policy Department wrote in the article titled ‘An Economic Activity Index for India’.

“At a time when global economic activity is besieged by the outbreak of the second wave of COVID-19… data for the month of October 2020 have brightened the near-term outlook for the Indian economy and stirred up consumer and business confidence,” the RBI noted. “There are, however, formidable downside risks that confront the path of recovery,” it added.

Also read: RBI bets on feel-good factor to revive economy

Observing that “the unrelenting pressure of inflation” was the foremost risk, the RBI warned that a hit to external demand from the second wave and financially stressed households and companies could also undermine the recovery.