The Reserve Bank of India has revealed through its “nowcasting” that the country’s economy will shrink by 8.6% in the second quarter of the ongoing financial year. This marks the second consecutive quarter of economic contraction, signifying a ‘technical recession’. Let’s take a closer look at what these terms mean and explore the current economic scenario in India.
Understanding Nowcast
The term “nowcast” in economics refers to the process of predicting the present or near-future state of an economy. The practice of nowcasting by Reserve Bank of India can be traced back to January 1947 when the first issue of the Bulletin was published. However, it faced an interruption during the period from 1995 until now.
The Present Economic Climate in India
According to the nowcast, India’s economy is expected to contract at a pace of 8.6% in the second quarter. Whilst this is a cause for concern, the pace of contraction is considerably slower than the 23.9% decrease recorded in the real GDP during the first quarter (April, May, June).
The Meaning and Implication of Technical Recession
A technical recession is signaled when an economy sees contraction for two consecutive quarters. Given the current trends, it is inferred that India has entered its first technical recession in the first half of the financial year 2020-21.
Navigating Key Economic Terms
To understand the full implications of a technical recession, it is helpful to clarify some key economic terms:
– Gross Domestic Product (GDP): It signifies the final value of goods and services produced within a country’s geographic boundaries during a specific timeframe, usually a year.
– Expansionary Phase: It denotes a time when the overall output of goods and services (typically measured by the GDP) increases from one quarter to another.
– Recessionary Phase: This phase occurs when the overall output of goods and services (usually reflected by the GDP) decreases from one quarter to another.
– Business Cycle: It includes cyclical ups and downs in broad measures of economic activity- namely output, employment, income, and sales. It is a cycle formed by expansionary and recessionary phases.
– Recession: This term refers to a persistent slowdown or substantial contraction in economic activities. If a recessionary phase sustains for a significantly long time, it culminates into a recession.
– Depression: It represents a severe and prolonged recession, characterized by a period of significant negative economic growth, spanning at least 12 months, with GDP falling by more than 10%.
Despite a slowdown in the rate of economic contraction, India has officially entered a technical recession for the first time in its history. The implications of this trend will continue to unfold in the coming months.
