India in a technical recession for the first time in its history: RBI Nowcast

NEW DELHI: A team of economists including Michael Patra, the Reserve Bank of India's deputy governor in charge of monetary policy, has predicted that the economy of India probably shrank for a second straight quarter. This could mean that the country shall be pushed into an unprecedented recession. The government is due to publish the official statistics on November 27.

According to the Reserve Bank of India's ‘nowcast,’ which is an estimate based on high-frequency data, the Gross domestic product (GDP) contracted 8.6% in the quarter ended September. From April to June, the economy had slumped about 24%.

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The authors wrote that India has entered a technical recession in the first half of 2020-21 for the first time in its history.

The median forecast in a Bloomberg survey of economists sees a contraction of 10.4% in the July-September quarter.

The Reserve Bank’s number is buoyed by cost cuts at companies, which boosted operating profits even as sales dipped.

The team of authors also used a range of indicators from vehicle sales to flush banking liquidity to signal brightening prospects for October.

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If this upturn is sustained, the Indian economy will return to growth in the October-December quarter, earlier than projected by Governor Shaktikanta Das last month.

However, “there is a grave risk of generalization of price pressures, unanchoring of inflation expectations feeding into a loss of credibility in policy interventions,” the team of economists wrote in the Reserve Bank’s bulletin.

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