Market Overview

India is headed for a technical recession — and the road to recovery will be long, analysts say

India’s economy is expected to improve in the quarter ending in September, compared to the record drop in growth in the previous three months. Still, analysts say it will be a long road to recovery. Gross domestic product for the July-September period — India’s fiscal second quarter — will be released on Friday. The South Asian country’s fiscal year begins in April and ends in March the following year.

Economists polled by Reuters predicted that India’s economy shrank 8.8% in the quarter ending in September. They expect GDP to also fall in the October to December quarter, followed by a 0.5% expansion between January to March. If Friday’s GDP print indicates a contraction, as is widely expected, it would put India into a technical recession — which is defined as two consecutive quarters of negative growth.

India’s economy was already facing challenges with consumer demand and prolonged difficulties in the banking sector when the coronavirus pandemic hit. The country went into a national lockdown between late-March and May in an attempt to slow the spread of the virus.

That essentially led to a collapse in private consumption and investment demand, leading to significant job and income losses that created uncertainties and further curtailed spending.

India announced several policy measures in recent months, including a near $10 billion package in October to prop up the economy, but economists were largely unimpressed.

The Reserve Bank of India last month said in its monetary policy statement that manufacturing, particularly consumer non-durables, and some categories of services like passenger vehicles and railway freights have gradually recovered in the second quarter, cushioned by government spending and rural demand. The outlook for agriculture was robust as well, according to the central bank.

Still, some economists believe that GDP is likely to undershoot the recovery suggested by the industrial sector for several reasons.

India is headed for a technical recession — and the road to recovery will be long, analysts say, CNBC, Nov 27

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