In the second quarter, India was among the most worse-off economies for which data were available
With two successive quarters of negative growth, India has now entered a technical recession. After the massive contraction in the first quarter, the economy recovered a little in the second quarter due to pent-up demand following relaxation of lockdown rules and increased spending during the festive season. However, despite the multiple relief packages announced to tackle COVID-19, government expenditure shrunk in the second quarter.
Contracting at a slower pace
In the July-September (Q2FY2021) quarter, India’s GDP contracted for the second time since 1996, the year when the country started recording such data. After contracting by 23.9% year-on-year in Q1FY21, the economy shrunk at a slower pace of 7.5% in Q2FY21.
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Not out of the woods
Most sectors recorded a significant turnaround from the record levels of slump witnessed in the previous quarter, with the economy opening up. The recovery was substantial in the manufacturing, construction, trade, hotels, and transport sectors. However, contraction quickened in the financial, real estate, public administration, and defence sectors.
Also read: Historic recession: On India’s GDP slump
Government spent less
Growth in government spending (Govt. Final Consumption Expenditure, GFCE) decelerated to -22.1% in Q2. Both Private Final Consumption Expenditure (PFCE), which reflects consumption, and Gross Fixed Capital Formation (GFCF), which reflects investments, continued to contract but at a slower pace than Q1.
Among the worst
The Q1 contraction of 23.9% was the worst among many key economies. In Q2, while India is no more the worst-performing economy, it is still among the most worse-off economies for which data were available.