India to Enter into Recession- Q2 GDP Shrank to 8.6%

Reserve Bank of India have came up with the monthly bulletin on November 11, 2020. The RBI bulletin reports that there is a sharp rebound of the Indian economy from May and June mainly because of the reopening after the COVID-19 induced lockdowns. This has slowed down the pace of economic contraction to 8.6 percent in the second quarter (Q2) of the current fiscal year.

Highlights

The report further highlights that the manufacturing industry has been normalising faster than other contact-intensive service sectors. Thus, the current contraction seems to be a short-lived contraction. This has helped to brighten the near-term outlook for the Indian economy. It has stirred up the confidence of consumer and business.

What are the Concerns?

Economists have highlighted the concerns that India has technically entered into the recession since India have shown GDP contraction for two successive quarters. This is the first time in Indian economic history that India has undergone into GDP contraction for two successive quarters.  Though, there are some signs of recovery, But the Indian economic recovery process still undergoing the risk of formidable downside risks. Apart from that, India has witnessed the situation of high inflation over the last few months. It is also a cause of concern. The accelerating inflation will further pressurize the economy.

Also, India is witnessing the second wave of the COVID-19 pandemic. This might hit the external demand of the Indian goods. Second wave of pandemic would reduce the exports from India thus, disturbing the trends of foreign trade. The households are already financially stressed . Thus, the internal demands in India will be reduced leading to a financial crisis in the Indian economy.