Gross Domestic Product (GDP) numbers for the July-September 2020 quarter for India were recently published by the RBI. As economies of world nations tumble due to Covid-19, India’s latest GDP numbers suggest that India made the best comeback among major economies from its worst-affected quarter. Let’s see what economic indicators are suggesting about India’s growth.
Crux of the Matter
GDP of India in the July-September 2020 quarter shrank by 7.5% (year-on-year) compared to a contraction of ~24% (year-on-year) in the April-June 2020 period.
However, when compared with previous quarters (qoq), India’s Jul-Sep GDP grew by ~23%. Let’s see how India performed compared to other nations.
Apr-Jun 2020 is considered China’s bounceback quarter after its worst-affected quarter (due to Covid-19) of Jan-Mar 2020 – China’s quarter-on-quarter growth in Apr-Jul 2020 was 21.1%. Among major economies, the July-Sept 2020 quarter is considered a bounceback quarter after the worst-affected quarter (due to Covid-19) of Apr-Jun 2020.
India’s bounceback quarter recorded higher growth than major economies at 23.24% (quarter-on-quarter).
Technically, 2 back to back quarters of Year-on-Year GDP slump indicates recession. The Quarter-on-Quarter trend of actual GDP numbers gives hope for a V shaped recovery in India.
India In Technical Recession
For the first time in history, India has entered into a ‘technical recession’. A country enters into a technical recession when it reports ‘two consecutive quarters of negative GDP growth’. India reported negative GDP growth in the Apr-Jun 2020 quarter with -24%, and in the Jul-Sep 2020 quarter with -7.5%. Note that these quarterly figures are compared with the same quarterly figures in the preceding year.
What Are Other Indicators Suggesting?
Gross Value Added (GVA) was -7% (year-on-year) in Jul-Sep quarter as compared to -22.8% (year-on-year) in the Apr-Jun quarter. GVA is simply the result of GDP minus Net Product Taxes. Although India is ‘technically’ in a recession, other indicators suggest an uptick in economic activity. Have a look at the infographic below:
Other indicators that are potential green shoots for the economy are:
– Monthly GST collections are in level or exceeding year-on-year figures
– Purchasing Managers’ Index was at 58.9 – decade high – in October 2020
– Toll collection was up in September 2020 – higher than pre-Covid levels
– Exports increased by 5.99% in September 2020 after declining for 6 months.
Do you think India’s economy is set for a V-shaped recovery? Do write us your views on email@example.com.
- Energy intensity is a measure of the energy inefficiency of an economy. It is calculated as units of energy per unit of GDP. High energy intensity means high industrial output as a portion of GDP. Countries with low energy intensity signifies a labor intensive economy.
- A final good or consumer good is a commodity that is used by the consumer to satisfy current wants or needs, rather than to produce another good. GDP is a monetary measure of the market value of all the final goods and services produced in a specific time period.
- Purchasing power parity is an economic term for measuring prices at different locations. It is based on the law of one price, which says that, if there are no transaction costs nor trade barriers for a particular good, then the price for that good should be the same at every location. Ideally, a computer in New York and in Hong Kong should have the same price. If its price is 500 US dollars in New York and the same computer costs 2000 HK dollars in Hong Kong, PPP theory says the exchange rate should be 4 HK dollars for every 1 US dollar.