In a first, India enters into technical recession

India has technically entered into a recession in the first half of 2020-21, for the first time in its history, by registering a negative growth rate in two successive quarters.

RBI's Economic Activity Index estimates that India's GDP growth for the second quarter of the current financial year was negative and contracted by 8.6 per cent. It had slumped by about 24 per cent in April to June.
It adds, however, that the contraction is ebbing with easing of lockdown and normalisation of activities and is expected to be short-lived. If this upturn is sustained, the economy will return to the growth trajectory in the October-December quarter, earlier than projected by Governor Shaktikanta Das last month.
Former Finance Minister and senior Congress MP P Chidambaram held a joint press conference with colleague Jairam Ramesh where he expressed surprise at Finance Minister Nirmala Sitharaman citing the RBI to predict that the economy will register a positive growth rate in the third quarter.

‘‘How can it be,’’ Chidambaram asked, noting that one and a half months of the third quarter is already over and there are no signs of the growth rate turning positive. He said such devastations do not occur at short notice. It was cumulative effect of the BJP government's foolish handling of the economy since 2014.
"The economy continues to be in dire straits and the government does not have a plan to revive the economy. On the other hand, it is busy deflecting the attention of the people from the economy and managing the headlines," he said.
Chidambaram pointed out that the very poor are outside the formal economy and unless money is put in their hands, they will not be able to contribute to the revival of demand and the consequent revival of the economy. Likewise, farmers must get fair and remunerative prices for their produce. Another worrisome aspect was that the Centre is starving the state governments of funds and doling out measly sums. Unless more money percolates down to the states, the latter will curtail capital expenditure in 2020-21 and the revival of the economy this year will be a pious wish.
The RBI report, however, insists that incoming data for the month of October 2020 has brightened the near-term outlook for the Indian economy and stirred up consumer and business confidence. Several developments point to a window of respite opening up and an unshackling of economic activity from the grip of Covid-19 as the festival season sets in, the report adds.

However, "there is a grave risk of generalization of price pressures and un-anchoring of inflation expectations feeding into a loss of credibility in policy interventions.

"Lurking around the corner is the third major risk -- stress intensifying among households and corporations that has been delayed but not mitigated, and could spill over into the financial sector," the RBI economists have concluded. "We live in challenging times."

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