India's GDP shrunk 7.5% in July-September — markets had feared much worse

India's GDP shrunk 7.5% in July-September — markets had feared much worse
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  • Indian economy contracted by 7.5% in the July-September quarter of this fiscal amid the COVID-19 crisis.
  • Manufacturing clocked in a surprise growth of 0.6% after shrinking by 39% in the first quarter.
  • India officially enters a technical recession with two consecutive quarters of negative GDP growth.
The Indian economy contracted by 7.5% in the July-September quarter of this fiscal amid the COVID-19 crisis, official data showed on Friday. However, this is much better than what the market was anticipating.

According to the Reuters poll the Indian GDP was likely to contract nearly 8.8% in the second quarter of this fiscal year. While the Reserve Bank of India had estimated a GDP contraction of 8.6% for the July-September quarter.

Even though the economic recovery has accelerated from the lows of pandemic-induced lockdown, India has officially entered a technical recession with two consecutive quarters of negative GDP growth.

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Street was expecting a bigger contraction in growth

July-September GDP Estimates
Bank of Baroda8%
Reuters Poll-8.8%
Nirmal Bang-8.2%
Source: Reports

The silver lining comes from the manufacturing sector, which logged marginal growth in the second quarter. Manufacturing gross value added (GVA) grew 0.6% compared to a contraction of over 39% in the first quarter. Maintaining the momentum , the agriculture sector grew by 3.4%, while the trade and services sector showed lower-than-expected contraction at 15.6%. Public spending was down staggering 12%.

India's GDP shrunk 7.5% in July-September — markets had feared much worse

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The economy had shrunk by an unprecedented 23.9% in the first quarter of this fiscal due to the coronavirus pandemic and resultant lockdowns. The gross domestic product (GDP) had expanded by 4.4% in the corresponding July-September period of 2019-20, according to data released by the National Statistical Office (NSO).

The improvement in the second quarter comes ahead of next week's interest rate decision by the RBI and coincides with a drop in India's daily virus cases, which have tapered off to half of its peak of more than 97,000 infections a day in mid-September.

Reserve Bank of India (RBI) Governor Shaktikanta Das had on Thursday stated that the recovery from the lockdown has been stronger than expected and the economy could show growth in the fourth quarter.

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(with inputs from agencies)

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