Indian economy contracts for 2Q in a row, recovery seen next year

Saturday, 28 November 2020 00:25 - - {{hitsCtrl.values.hits}}

NEW DELHI (Reuters): The Indian economy shrank for the second straight quarter through September, although it showed signs of a pick-up after the easing of pandemic restrictions that triggered a record contraction in the previous quarter.

India’s Gross Domestic Product in July-September quarter contracted 7.5% on year, data released by the National Statistical Office on Friday showed, compared to a decline of 23.9% in the previous three months.

Analysts in a Reuters poll had forecast an 8.8% contraction in the latest period.

Annual growth of 3.4% in farm sector and 0.6% in manufacturing during September quarter raised hopes of an early recovery as the government gears up to distribute coronavirus vaccines to a country with about 1.4 billion people.

Economists have marginally raised growth forecasts this month after a pick-up in consumer demand for autos, non-durables and rail freight during the festival season.

“The possibility of a release of several highly effective vaccines soon gives us hope that there is an end date to the pandemic,” said Rumki Majumdar, Economist at Deloitte India, while expressing confidence in a quick economic rebound.

India’s tally of COVID-19 infections has crossed 9.3 million to stand as the world’s second highest after the United States, with 135,715 deaths in the south Asian nation.

The Reserve Bank of India, which has slashed its benchmark repo rate by a total of 115 basis points since March to cushion the shock from the crisis, is expected to keep rates on hold at its policy review meeting next week due to growing concerns about inflation.

Prime Minister Narendra Modi, whose party won elections this month in the eastern state of Bihar, expects the recent easing of farm and labour laws, along with tax incentives, to bolster manufacturing and lure more foreign investment.

But critics say the economy, which must grow at more than 8% a year to create jobs for millions of young people entering the workforce, faces a prolonged slowdown, thanks to a delay in resolving a banking crisis and inadequate stimulus measures.