RBI ‘nowcast’ signals India in historic technical recession; Rahul Gandhi slams Centre

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Congress leader Rahul Gandhi on Thursday targeted the government over the state of the economy, claiming the country has entered into a recession for the first time in history due to the policies of Prime Minister Narendra Modi.
“India has entered into recession for the first time in history. Mr Modi’s actions have turned India’s strength into its weakness” he said on Twitter.

India’s economy is likely to enter a recessionary phase for the first time ever in the second quarter (July-September) of the current financial year, with the Gross Domestic Product expected to contract by 8.6%, the Reserve Bank of India showed in its first-ever published ‘nowcast’, which is an estimate based on high-frequency data.

Technically, a country’s economy is said to hit recession when its GDP growth is negative for two consecutive quarters or more. India’s economy had contracted by an unprecedented 23.9% in the first quarter (April-June) of this financial year, hit by the coronavirus pandemic and the subsequent slowdown in the economy.

The RBI said the economy will break out of contraction of the six months gone by and return to positive growth in the October-December quarter of 2020-21. The central bank cited improvement in indicators like aggregate demand, Goods, and Services Tax collection, and manufacturing activities to suggest that the economy is picking up pace.

Risk of Inflation

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The central bank also cautioned about the formidable downside risk of high inflation in the coming months. “The foremost (risk) is the unrelenting pressure of inflation, with no signs of waning in spite of supply management measures such as the imposition of stock limits on onion traders, imports of potatoes and onions (without fumigation) and a temporary reduction in import duties on pulses,” it said in the report.

Retail inflation in September rose to 7.34%, the highest since January, and well above the RBI’s mandated range of 2% to 6%. The inflation numbers for October are expected to be released on Thursday.

The central bank also flagged the risk from the second wave of Covid-19. It said that if external demand collapses again, the recent recovery in exports could become stillborn. Apart from these the RBI flagged a third major risk – “stress intensifying among households and corporations that have been delayed but not mitigated, and could spill over into the financial sector”