In News:

  • India’s Gross Domestic Product (GDP) contracted 7.5% in the second quarter of 2020-21, following the record 23.9% decline recorded in the first quarter, as per estimates released by the National Statistical Office .
  • The country has now entered a technical recession with two successive quarters of negative growth.
  • However, the economy’s performance between July and September when lockdown restrictions were eased is better than most rating agencies and analysts anticipated. While most estimated a contraction of around 10%, the Reserve Bank of India projected a 8.6% decline in the second quarter. Agriculture, which was the only sector to record growth between April and June this year, grew at the same pace of 3.4% in the second quarter, while manufacturing gross value-added (GVA) staged a sharp recovery to record 0.6% growth between July and September after collapsing 39.3% in the first quarter.
  • Electricity, gas and other utility services saw 4.4% growth in the second quarter from a 7% contraction in Q1. But it remained bleak for several sectors, including mining, services such as retail trade and hotels, and construction.

Cautiously optimistic

  • According to Chief Economic Adviser Krishnamurthy Subramanian. “One should be cautiously optimistic as the economic impact is primarily due to the pandemic and the sustainability of the recovery depends critically on the spread of the pandemic,”
  • The government remains ready to come up with calibrated responses and there could be neither too much exuberance nor excessive pessimism at this point.
  • Finance Minister Nirmala Sitharaman had earlier suggested that the economy could record near zero growth in 2020-21

Core sector contraction widens to 2.5%

  • Output at eight core sectors shrank 2.5% in October with the contraction widening from September’s revised 0.1% decline as steel production slid again after a brief revival in the preceding month.
  • Steel output, which has an almost 18% weight in the index and had recovered for the first time since March to record 2.8% growth in September, slipped back last month to register a 2.7% contraction.
  • Cement, however, saw production rise for the first time since February, posting an increase of 2.8%, and along with the positive growth in the output of fertilizers, electricity and coal helped slow the pace of overall contraction.
  • Electricity generation rose by a strong 10.5%, marking the second successive month of growth after rising 4.8% in September, as per revised data. Between March and August, electricity generation had consistently declined.
  • Coal production grew for the third straight month, rising 11.6% in October. Still, economists said the data reflected a weakness in underlying economic activity.

‘Recovery still weak’

  • Core sector data suggests the industrial recovery is still weak and the traction seen in the index of industrial production growth lately is triggered largely by the festival demand.
  • The core sectors account for about 40% of the Index of Industrial Production (IIP) and there are concern that all core sectors, barring fertilizers, had seen negative growth in the first seven months of 2020-21.
  • Output of fertilizers, one of the few sectors to record consistent growth through most of the lockdown months, surged 6.3% in October after a marginal 0.3% decline in September.

Oil sector drags

  • Refinery products contracted for an eighth month, falling 17%, natural gas output shrank 8.6% and crude oil production fell 6.2% in October, continuing a sustained period of decline.

Moreover , According to the earlier National Statistical Office (NSO) data, India’s Gross Domestic Product (GDP) growth contracted by 23.9% in the first (April-June) quarter of 2020 compared to the same period (April-June) in 2019 which was the sharpest contraction since India started reporting quarterly data in 1996.

  • GDP is a measure of economic activity in a country. It is the total value of a country’s annual output of goods and services. It gives the economic output from the consumers’ side.
  • GVA is the sum of a country’s GDP and net of subsidies and taxes in the economy.