Oct. data brightens outlook, formidable risks ahead, RBI says in monthly bulletin
India’s economy rebounded sharply in the wake of the reopening from lockdowns, slowing the pace of its contraction to 8.6% in the second quarter, a ‘nowcast’ in the RBI’s monthly bulletin showed on Wednesday.
Still, the estimate implies that India is likely to have entered a technical recession in the first half of 2020-21 for the first time in its history with two successive quarters of GDP contraction, wrote an RBI official who authored an article in the bulletin.
An Economic Activity Index, which tracks real-time data from 27 monthly indicators, showed the economy had rebounded sharply from May/June, with industry normalising faster than contact-intensive service sectors, pointing to a short-lived contraction.
“The index nowcasts GDP growth at (-) 8.6% in Q2, implying that India is likely to have entered a technical recession in the first half,” Pankaj Kumar of the RBI’s Monetary Policy Department wrote in the article titled ‘An Economic Activity Index for India’.
“At a time when global economic activity is besieged by the outbreak of the second wave of COVID-19… data for the month of October 2020 have brightened the near-term outlook for the Indian economy and stirred up consumer and business confidence,” the RBI noted. “There are, however, formidable downside risks that confront the path of recovery,” it added.
Observing that “the unrelenting pressure of inflation” was the foremost risk, the RBI warned that a hit to external demand from the second wave and financially stressed households and companies could also undermine the recovery.