Covid-19 lockdowns between March and June severely damaged the Indian economy. But even after the lockdowns were lifted, things did not change much for the country as India continued to be one of the major hardest-hit economies during the July-September period.
During the September quarter, India’s economy contracted 7.5% year over year, plunging the country into recession. Among the world’s major economies, only the UK and Spain fell more sharply than India.
While the contraction of the Indian economy has eased compared to the first quarter of fiscal 2020, many sectors are still in serious distress.
India in recession
September’s economic slowdown was led by the service sector, with the trade, hospitality and transportation segments experiencing the largest declines. Other sectors of the service industry such as finance, real estate, professional services, public administration and defense were also in negative territory.
Besides agriculture, electricity and manufacturing, all other sectors continued to contract.
Surprisingly, the manufacturing sector has made a turnaround, but there are concerns about its viability following weak demand and low investment.
“As it was expected that a combination of pent-up and festive demand will play a large role in the demand surge, (the) manufacturing sector prepared itself by building up inventory during the months of August and September. Yet this manufacturing growth should be taken with a pinch of salt as it is on a weak basis, ”warned Sunil Kumar Sinha, senior economist at India Ratings and Research.
Economists believe India’s economy is not out of the woods yet. Factors such as the increase in Covid-19 infections, the reimposition of lockdowns in parts of the country and the reduction in festive demand will give a clearer picture in the coming quarters.
“Forthcoming economic data would be crucial in assessing the quantum of ‘foam’ in this second quarter data of pent-up, festive and inventory replenishment demands and to shed more light on the employment and wage situation,” said Sreejith Balasubramanian, economist at IDFC Asset Management Company. He added that cutting costs by companies in the second quarter to improve profits and demand in key export markets will also play an important role in how India’s recovery will shape.