All it took was a microbe to crash the Asian Tiger, which was already on its knees.
Having endured a slowdown since Q4, FY18, the Indian economy entered a technical recession -- defined as two consecutive quarters of negative growth -- confirmed the National Statistics Office (NSO). We've been there since October, and Friday's data reveal only brought us up to date.
Asia's third-largest economy may have sidestepped some elephant traps like the twin balance sheet and the NBFC crisis, but it has eventually succumbed to the invisible coronavirus.
In Q2, GDP growth declined by 7.5%, reducing all expert predictions of 8-9% contraction into random guesses. It's also a less horrendous number than the 23.9% recorded in Q1.
Still, assuming a 5-6% trendline growth, the effective output loss during the first half of the current fiscal is upwards of Rs 20 lakh crore. That's enough to numb our senses, but the good news is on a sequential basis, the second quarter saw an increase in growth raising hopes of turning the corner this quarter. In any case, the RBI predicts full fiscal contraction at 9.5%.
In absolute numbers, the national output punched in at Rs 33.14 lakh crore, down from Rs 35 lakh crore last year. In Q1, it stood at Rs 26.9 lakh crore. So, on a sequential basis, it amounts to 23.2% growth.
Nominal GDP -- widely used in government estimates -- contracted by 4% at Rs 47.22 lakh crore as against Rs 49.21 lakh crore last year. In Q1, it shrank 20.6% or from Rs 44.8 lakh crore to Rs 35.6 lakh crore.
On the supply side, all but agriculture, manufacturing and electricity saw a de-growth in Q2. But even though construction, mining and quarrying and financial services shrank, the contraction was significantly better than Q1. Among all the eight broad metrics, the services sector took the severe hit with a contraction of 15.6%, while the construction sector remains stuck in the negative zone. Growth in agriculture too was flat at 3.4%.
GDP by expenditure method had the biggest disappointment in store. Government expenditure, which has been saving the day for long, grew by 10.9% lower than Q1. Private consumption did one shade better than the previous quarter registering a growth of 54.2%, and so were investments which shot up at 29%.
"While the Q2 GDP print was a clear positive surprise, it might be prudent to maintain caution as regards the pace of recovery in the coming months as one cannot rule out frontloading of activities and production during Q2 to an extent, especially closer to the festive season. Today's upside surprise in the Q2 print should not suggest commensurate uptick in growth during the second half of FY21. A somewhat more uneven pace of recovery remains our baseline expectation for the remaining months of the current fiscal," said Siddhartha Sanyal, Chief Economist and Head – Research, Bandhan Bank.