RBI Admits India May Have Entered 'Historic Recession'; July-Sept GDP To Contract 8.6%

The country’s Gross domestic product (GDP) contracted 8.6 per cent in the quarter ended September, which the RBI showed in its first ever published 'nowcast'.

(Representative Image/ Getty)

New Delhi: A team of economists including Reserve Bank of India (RBI) deputy governor in charge of monetary policy Michael Patra predicted that as the country’s economy probably shrank during the second quarter, it may lead to an unprecedented recession. The country’s Gross domestic product (GDP) is expected to contract 8.6 per cent in the quarter ended September, RBI showed in its first ever published 'nowcast,' which is an estimate based on high-frequency data. The economy of India had slumped about 24 per cent in April to June due to strict lockdown imposed to contain the spread of Covid-19 disease. "India has entered a technical recession in the first half of 2020-21 for the first time in its history," the authors wrote. The government is due to publish official statistics on November 27. The Reserve Bank's numbers were kept afloat by cost cuts as companies that boosted operating profits even as sales dipped. The team of authors also used a range of indicators from vehicle sales to flush banking liquidity to signal brightening prospects for October. If this upward trend in the economy is sustained, the Indian economy will return to growth in the October-December quarter, earlier than projected by Governor Shaktikanta Das last month, when he pledged to keep monetary policy accommodative. However, "there is a grave risk of generalization of price pressures, unanchoring of inflation expectations feeding into a loss of credibility in policy interventions," the team of economists wrote in the Reserve Bank's bulletin. The team also highlighted risks to global growth from the second wave of coronavirus infections. "Lurking around the corner is the third major risk -- stress intensifying among households and corporations that have been delayed but not mitigated, and could spill over into the financial sector," the economists concluded adding that the country is living in challenging times.