India's GDP contracts by 7.5% in Q2-FY21; Agriculture & Manufacturing show upward growth

As per the Statistics Ministry, India's Gross Domestic Product contracted by 7.5% in the second quarter (July-September) of 2020-21 amid the COVID-19 crisis. This marks the second quarter in a row where the country's GDP has contracted, implying that India has plunged into a technical recession. During the April-June quarter, India's GDP crashed by 23.9% which was attributed to the fact that the country was among the economies worst hit by the COVID-19 pandemic. 

In a heartening development, sectors such as agriculture, forestry and fishing (3.4%), manufacturing (0.6%) and electricity, gas, water supply and other utility services (4.4%) have recorded a positive GDP growth. The Centre has made it clear that the GDP estimates are likely to undergo revisions owing to the reliance on limited data sources. The release of the next quarterly GDP estimates shall be on February 26, 2021. 

Finance Ministry optimistic about estimates

Reacting to the estimates, the Ministry of Finance stressed that the sustainability of the recovery depends on keeping the COVID-19 pandemic under control. Pointing out that a broad-based recovery is underway in the manufacturing and services, it added that the index of industrial production has entered positive territory. The Ministry stated, "V-shaped recovery in use-based Industries especially in consumer goods, especially consumer durables, and investment, especially capital and infrastructure goods suggest a strong revival of both consumption and investment, which together account for about 90% of India’s GDP". 

Meanwhile, it also noted that the corporate sector was back on track, with the level of operating profits similar to that in September 2018. According to the Finance Ministry, the momentum in steel production and consumption signalled the revival of construction activity. Moreover, it highlighted that power consumption bills clocked double-digit growth in October, indicating buoyancy in industrial and commercial activities. 

Chief Economic Advisor weighs in on GDP data

Even Chief Economic Advisor KV Subramanian expressed optimism about the GDP data for the second quarter. He contended that the uncertainty in the economic outlook is due to the novel coronavirus crisis. While maintaining that the momentum of the Indian economy was halted by the pandemic, he held the stringent lockdown responsible for the contraction of GDP in the April-June quarter.

Chief Economic Advisor KV Subramanian remarked, "The GDP estimates are most encouraging that what was anticipated by most commentators. Uncertainty in the economic outlook is due to the COVID-19 pandemic and therefore I would urge caution especially given winter months."