Indian Economy Shrinks 24% In June Quarter
New Delhi: India’s economy shrank by nearly a quarter in April-June, much more than forecast and pointing to a longer than previously expected recovery with analysts calling for further stimulus.
Consumer spending, private investments, and exports all collapsed during the world’s strictest lockdown imposed in late March to combat the COVID-19 pandemic, and India- the world’s fastest-growing large economy until a few years ago - now looks to be headed for its first full-year contraction since 1980.
Gross domestic product shrank by a record 23.9% in April-June from a year earlier, official data showed on Monday, against a Reuters poll forecast for an 18.3% contraction.
Krishnamurthy Subramanian, chief economist at the Ministry of Finance, said India’s economy was set for a “V-shaped” recovery and should perform better in the coming quarters as indicated by a pickup in rail freight, power consumption, and tax collections.
Some private economists, however, said the fiscal year that began in April could see a contraction of nearly 10%, the worst performance since India won independence from British colonial rule in 1947, and likely to push millions more into poverty.
“Given the limited fiscal space and the need to stimulate a more durable growth, the growth recovery will be gradual and is likely to continue into 1H FY22,” said Suvodeep Rakshit, senior economist at Kotak Institutional Equities, Mumbai.
Consumer spending - the main driver of the economy - dropped 31.2% year-on-year in April-June compared to a 2.6% fall in the previous quarter, data showed, while capital investments were down 47.9% compared to a 2.1% rise in the previous quarter.
Prime Minister Narendra Modi announced a $266 billion stimulus package in May, including credit guarantees on bank loans and free food grains for poor people, but consumer demand and manufacturing have yet to recover.
The Reserve Bank of India, which has reduced the benchmark repo rate INREPO=ECI by a total of 115 basis points since February, is expected to cut interest rates to boost growth after keeping them on hold this month amid rising inflation.
