India’s economy contracts 7.5pc

29 November, 2020 12:00 AM printer

MUMBAI: India's economy contracted 7.5 percent between July and September, putting it among the worst-performing major advanced and emerging economies as it entered a technical recession for the first time since independence, official data showed Friday.

Although the figures were an improvement on the record 23.9-percent contraction recorded last quarter, they indicate that Asia's third-largest economy is in for a tough fight as it attempts to revive demand and create jobs even as coronavirus infections climb, reports AFP.

The two successive quarters of contraction mean the country has now entered a "technical recession" for the first time since 1947.

After virus-related lockdowns ravaged the globe, the growth recorded by major economies including the United States, Japan and Germany during the quarter ending on September 30 raised expectations that India would also enjoy a revival.

But, while consumer businesses saw a boost due to increased spending in the run-up to the October-November festive season, hopes of a broader recovery were dashed, with the construction and hospitality sectors taking a hit.

Farming continued to be a relatively bright spot, while manufacturing activity also increased during the July-September period after plunging nearly 40 percent during the previous quarter due to the lockdown.

Analysts said the figures were encouraging, suggesting that the economy would likely fare better in the next quarter.

"The worst is over for the Indian economy looking at all the indicators. We will see a continued improvement... going forward", said Sameer Narang, chief economist at the State Bank of Baroda.

Narang told AFP that Friday's data had beaten the bank's estimates of an eight-percent contraction and said the economy was primed for a recovery so long as a spike in infections did not trigger a fresh lockdown.

Economist Vivek Kumar of QuantEco Research told AFP that the uptick in manufacturing boded well for India after factories endured prolonged closures following the months-long lockdown announced late March.

"India's recovery is led by manufacturing and not services sector and a similar trend is seen in all major economies. Even before Covid-19, manufacturing was struggling a bit so these are encouraging signs," he said.

New Delhi has struggled to kick-start an economy that is expected to shrink 9.5 percent this year, according to estimates released by India's central bank governor Shaktikanta Das last month.