India’s economy enters recession for first time since independence

Published November 28, 2020
An employee works inside the KHS Machinery Pvt. Ltd, a manufacturer of filling and packing equipments for beverage, food and non-food industries at Hirapur village on Nov 27. — AFP
An employee works inside the KHS Machinery Pvt. Ltd, a manufacturer of filling and packing equipments for beverage, food and non-food industries at Hirapur village on Nov 27. — AFP

MUMBAI: India’s economy contracted 7.5 per cent between July and September, putting it among the worst-performing major advanced and emerging economies as it entered a technical recession for the first time since independence, official data showed on Friday.

Although the figures were an improvement on the record 23.9pc contraction recorded last quarter, they indicate that Asia’s third-largest economy is in for a tough fight as it attempts to revive demand and create jobs even as coronavirus infections climb.

The two successive quarters of contraction mean the country has now entered a “technical recession” for the first time since 1947.

After virus-related lockdowns ravaged the globe, the growth recorded by major economies including the United States, Japan and Germany during the quarter ending on September 30 raised expectations that India would also enjoy a revival.

But, while consumer businesses saw a boost due to increased spending in the run-up to the October-November festive season, hopes of a broader recovery were dashed, with the construction and hospitality sectors taking a hit.

Farming continued to be a relatively bright spot, while manufacturing activity also increased during the July-September period after plunging nearly 40pc during the previous quarter due to the lockdown.

Analysts said the figures were encouraging, suggesting that the economy would likely fare better in the next quarter.

“The worst is over for the Indian economy looking at all the indicators. We will see a continued improvement... going forward,” said Sameer Narang, chief economist at the State Bank of Baroda.

Narang said that Friday’s data had beaten the bank’s estimates of an 8pc contraction and said the economy was primed for a recovery so long as a spike in infections did not trigger a fresh lockdown.

Economist Vivek Kumar of QuantEco Research said that the uptick in manufacturing boded well for India after factories endured prolonged closures following the months-long lockdown announced late March.

“India’s recovery is led by manufacturing and not services sector and a similar trend is seen in all major economies. Even before Covid-19, manufacturing was struggling a bit so these are encouraging signs,” he said.

New Delhi has struggled to kick-start an economy that is expected to shrink 9.5pc this year, according to estimates released by India’s central bank governor Shaktikanta Das last month.

The International Monetary Fund has meanwhile predicted that India’s economy would contract by 10.3pc this year, the biggest slump for any major emerging economy and the worst since independence.

A report by Oxford Economics released earlier this month said that India would be the worst-affected economy even after the pandemic eases, stating that annual output would be 12pc below pre-virus levels through 2025.

India’s economy had struggled to gain traction even before the pandemic, and the hit to global activity from the virus and one of the world’s strictest lockdowns combined to deal the country a severe blow.

The shutdown in the vast country of 1.3 billion people left huge numbers of people jobless almost overnight, including tens of millions of migrant workers in the shadow economy.

The government has since been easing restrictions to revive activity, announcing two stimulus packages to offer farmers easier access to credit and dole out benefits to small businesses.

Published in Dawn, November 28th, 2020

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