Economic growth still in the red, India preparing for recession, JAKARTA – India is entering an unprecedented recession due to the economic contraction in the three months to September 2020. The contraction is the effect of the regional quarantine to suppress the spread of Covid-19.

begin Bloomberg On Saturday (November 28th, 2020) the Indian Ministry of Statistics announced that the gross domestic product (GDP) fell by 7.5 percent in the last quarter compared to the previous year. According to economists in a Bloomberg poll, the decline was less than the forecast 8.2 percent.

While Indian GDP was still declining, it rose significantly from a record 24 percent decline in the previous quarter.

Prime Minister Narendra Modi imposed one of the strictest curfews in the world in March 2020 and weakened demand for goods and services.

Despite measures to contain the pandemic, the country is now home to the second highest Covid 19 infections after the United States, with 9.3 million cases. A second consecutive quarterly decline in GDP drove Asia’s third-largest economy into its first technical recession since 1996.

Financial services and real estate – among the largest constituents of India’s dominant service sector – declined 8.1 percent year over year in the last quarter, while commerce, hotels, transportation and communications fell 15.6%. Production rose by 0.6 percent, electricity and gas by 4.4 percent and agriculture by 3.4 percent.

“GDP is developing more or less in the expected direction, albeit better than expected. The fact that we are in negative territory and will be in the next quarter is also an indication of difficult times, “said Madan Sabnavis, Chief Economist at Care Ratings Ltd.

Government bonds fell on the Friday ahead of the data’s release, with the benchmark 10-year bond yield rising 4 basis points to 5.9 percent while the rupee fell 0.2 percent to $ 74.04.

Krishnamurthy Subramanian, the government’s chief economic advisor, told reporters that the announcement was encouraging this time around as the pandemic is not over and performance is much better compared to the previous quarter.

The government and central bank have each worked to support the economy, with total incentives totaling about 30 trillion rupees ($ 405 billion), or 15 percent of GDP. The Reserve Bank of India, which cut rates 115 basis points this year, will review its monetary policy next week, with its stance expected to remain accommodative in the short term.

For now, the momentum along with the demand of the festival season has helped kick-start economic activity and slowly replace worries about the extent of the recession in India with optimism that a recovery is underway.

Indicators from auto sales to service sector activity were higher in October, while alternative data signaled strong demand in a largely domestic consumption-driven economy.

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