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India in historic technical recession, RBI says in first ‘Nowcast’

New Delhi

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

Gross domestic product contracted 8.6% 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% in April to June.

“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 November 27.

Rare contraction
The Reserve Bank’s number is buoyed by cost cuts at companies, which 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.
‘Challenging times’
“Lurking around the corner is the third major risk — stress intensifying among households and corporations that has been delayed but not mitigated, and could spill over into the financial sector,” the economists concluded. “We live in challenging times.”

Rahul Gandhi blames Modi for RBI’s recession

Congress leader Rahul Gandhi on Thursday targeted Prime Minister Narendra Modi over the RBI report, claiming the country has entered into a recession for the first time in history due to the policies of Prime Minister Narendra Modi.

“India has entered into recession for the first time in history. Mr Modi’s actions have turned India’s strength into its weakness,” he said.

Arvind Kejriwal-led AamAadmi Party also targeted the Centre and congratulated Finance Minister Nirmala Sitharama for “achieving this feat.”

 

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