RBI Says India Has Officially Entered Recession As GDP Likely To Contract By 8.6%

The Gross Domestic Product (GDP) is expected to contract by 8.6 per cent for the July-September period. This means that India will enter into a recession for the first time in history in the first half of this fiscal with two successive quarters of negative growth due to the COVID-19 pandemic.

Researchers have used the 'nowcasting' method to arrive at the estimates ahead of the official release of data and their views in an article in RBI's monthly bulletin released on Wednesday do not constitute the central bank's views.

File Photo

The nationwide lockdown induced by the pandemic, had led to a steep contraction of 23.9 per cent in the 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.

"India has entered a technical recession in the first half of 2020-21 for the first time in its history with Q2 2020-21 likely to record the second successive quarter of GDP contraction," as per the article titled 'Economic Activity Index', authored by Pankaj Kumar of the Monetary Policy Department.

It, however, added that the contraction is "ebbing with gradual normalisation in activities and expected to be short-lived."

The official GDP data will be released later this month.

Representational Image

The article said despite the raging pandemic, preliminary estimates are showing a jump in household financial savings to 21.4 per cent of GDP for the June quarter, as against 7.9 per cent in the June 2019 quarter and 10 percent in the immediately preceding March 2020 quarter.

"The sharp increase is counter-seasonal and may be attributed to the COVID 19-led reduction in discretionary expenditure or the associated forced saving and the surge in precautionary saving despite stagnant/reduced income," it said.