Online Courses (English)
This just in:

State PCS

Daily Updates

Indian Economy

India Emerged Out of Technical Recession

  • 01 Mar 2021
  • 6 min read

Why in News

The Indian economy has emerged out of technical recession as it grew at 0.4% in the third (October-December) quarter of 2020-21 with improvement in manufacturing, construction and agriculture.

  • The Gross Domestic Product (GDP) had contracted by 24.4% and 7.3% in the April-June and July-September quarters, respectively, marking a technical recession in the aftermath of the Covid-19 pandemic.
  • A technical recession is when a country faces a continuous decline for two consecutive quarters in the GDP.

Key Points

  • Growth Projections:
    • For the full fiscal year (2020-21), the National Statistical Office (NSO) has projected a contraction of 8%, higher than the forecasts of the Economic Survey (7.7%) and the Reserve Bank of India (7.5%).
    • The real GDP growth estimate for the third quarter (2020-21) is at 0.4%. In the corresponding quarter last year, the economy had grown 3.3%.
    • For the April-June quarter (Q1) and July-September (Q2), the contraction numbers were revised from 23.9% to 24.4% and 7.5% to 7.3%, respectively.
  • Growth Across Major Sectors:
    • Industries and Services Sector:
      • With improved performance of manufacturing, electricity and construction, industry recorded a growth rate of 2.6% in the third quarter against the contraction in the first two.
      • However, services, with the largest share in GDP at 57%, still remained in the contraction zone with a 0.9% fall year-on-year.
        • Financial, real estate and professional services grew 6.6% as against 9.5% contraction in the previous quarter and 5.5% growth in the corresponding period last year.
        • Mining, trade, hotels, transport, communication and broadcasting services and public administration services continued to stay in the negative territory in the third quarter registering a contraction of 5.9 %, 7.7%, and 1.5%, respectively.
    • Cores Sector Output:
      • India’s eight core sectors recorded a meagre 0.1% rise in output in January 2021, propped up by a 5.1% rise in electricity, 2.7% growth in fertilizers and 2.6% growth in steel production, even as the other five sectors contracted.
      • Coal, crude oil, natural gas, refinery products, and cement recorded negative growth in January.
      • The eight core industries constitute 40.27% of the Index of Industrial Production.
    • Agriculture:
      • Growth in agriculture jumped 3.9% in October-December compared with 3% growth in July-September and 3.4% growth during the corresponding quarter last year.
  • Reasons:
    • New Investment:
      • The positive momentum seen in investment demand (Gross Fixed Capital Formation - GFCF) as it grew by 2.6% in the third quarter after being in doldrums for several quarters now.
        • GFCF: It is essentially net investment. It is a component of the Expenditure method of calculating GDP.
      • This is the result of unrelenting efforts of the government to go all-out to revive investments under the ambit of the various measures which formed a part of the Atma Nirbhar Bharat package.
      • Going forward, the growth stimuli available from the Union Budget 2021-22 and the additional measures including the Production-Linked Incentive (PLI) will lead to a strong growth path over the recovery horizon.
    • Increase in Centre’s Capital Expenditure:
      • The resurgence of Government Final Consumption Expenditure (GFCE) in Q3 and Centre’s capital expenditure increased year-on-year by 129% in October, 249% in November and 62% in December.
        • GFCE is an aggregate transaction amount on a country's national income accounts representing government expenditure on goods and services that are used for the direct satisfaction of individual needs (individual consumption) or collective needs of members of the community.
    • V-shaped recovery:
      • The Q3 GDP numbers showed the success of the government’s initial policy of “lives over livelihood”. “The sharp V- shaped recovery has been driven by rebounds in both Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF) as a combination of astute handling of the lockdown and a calibrated fiscal stimulus.
        • PFCE: It is defined as the expenditure incurred by the resident households and non-profit institutions serving households (NPISH) on final consumption of goods and services, whether made within or outside the economic territory.
  • Other Economic Indicators:
    • Domestic Consumption: Disaggregated data show that domestic consumption continued to contract, at 58.6% of GDP in Q3, as against 60.2% during the corresponding period of last fiscal.
    • Government Spending: Government spending, as reflected by the GFCE, dipped a tad to 9.8% of GDP in Q3 from 10% during Q2.
    • GVA Estimates: The growth rate in terms of gross value added (GVA) — which is GDP minus net product taxes, and reflects growth in supply — is seen contracting 6.5% in 2020-21 as against earlier estimates of 7.2% and 3.9% in the previous year.
    • GDP in Nominal Terms: It factors in inflation, and is estimated at (-) 3.8% in 2020-21.

Source:TH

SMS Alerts
 

Please login or register to view note list

close

Please login or register to list article as bookmarked

close
 

Please login or register to make your note

close

Please login or register to list article as progressed

close

Please login or register to list article as bookmarked

close