Live updates: India's Q2 GDP contracts by 7.5% after record slump in last quarter

The Reserve Bank of India (RBI) in its reinvented nowcast mentioned that GDP probably contracted 8.6 per cent in Q2. According to a team of economists including RBI deputy governor Michael Patra, "India has entered a technical recession in the first half of 2020-21 for the first time in history with Q2, 2020-21 likely to record the second consecutive quarter of GDP contraction."

The GDP contracted by 23.9 per cent in the June quarter due to strong lockdown measures, thereby leading to expectations of the GDP growth being a negative 14 per cent for the full fiscal. However, resumption of economic activities lately has resulted in some revisions. Even though certain green shoots are visible in the economy, India's GDP figure has remained in negative zone for two successive quarters.

The recent development on Covid-19 vaccine has boosted stock markets to repeated record highs and fueled hopes of a pick-up in economic activity. That, coupled with festive-led demand, has lifted optimism amongst economists over the past month. Although, a resurgence in coronavirus cases in some parts of the country leading to renewed lockdowns, is likely to further damage the ongoing supply-side disruptions such as transport, increasing the risk of high inflation for a prolonged period.

The positive impetus in Q2 is mainly based on two factors -- anticipation of a pick-up in demand during the festivals and uptick in corporate profit, which though has been more due to the cost-savings rather than top line growth. In fact, sales growth continued to be negative in Q2 but overall numbers are positive as cost economies have been more on salary bills, power and fuel and selling expenses, combined with a drop in growth in raw material costs due to fall in sales. A spate of economic indicators in the past few weeks have pointed to a recovery gathering pace and there are expectations that the third or fourth quarter may post a small positive growth.

According to a SBI research report, Q2 real GDP is expected to see a contraction of 10.7 per cent. Nominal GDP contraction could be around 8.4 per cent. SBI's group chief economic advisor, Soumya Kanti Ghosh says, 'Q2 GDP contraction will be in double digits as recovery was patchy in sectors like mining, manufacturing, construction and services related to trade, hotels and transport. On the other hand, ratings agency Crisil expects 12% contraction in Q2 GDP.