Technical recession
What has the RBI cautioned about GDP decline amid the pandemic, and what lies ahead?
The story so far: The Reserve Bank of India’s (RBI) latest monthly bulletin features an article ‘An Economic Activity Index for India’, which projected that India’s GDP (Gross Domestic Product) contracted by 8.6% in the July-September quarter of the financial year ending in March 2021.
- Thus, “India has entered a technical recession in the first half of 2020-21 for the first time in its history with Q2:2020-21 likely to record the second successive quarter of GDP contraction.
What is a technical recession?
- A technical recession is a term used to describe two consecutive quarters of decline in output.
- In the case of a nation’s economy, the term usually refers to back-to-back contractions in real GDP.
Difference between a ‘technical recession’ and a ‘recession’
- Former term is mainly used to capture the trend in GDP, the latter expression encompasses an appreciably more broad-based decline in economic activity that covers several economic variables including employment, household and corporate incomes and sales at businesses.
- Another key feature of a technical recession is that it is most often caused by a one-off event (in this case, the COVID-19 pandemic and the lockdowns imposed to combat it) and is generally shorter in duration.
Which are some of the other economies to have recently experienced a technical recession?
- The COVID-19 pandemic has had a devastating impact on economic activity worldwide.
- Indonesia, for instance, slid to a recession for the first time in two decades as real GDP in Southeast Asia’s largest economy shrank 3.49% in the three months ended September.
- The country had last experienced consecutive contractions in the wake of the Asian financial crisis in the late 1990s.
- The U.K. entered a recession when its economic output contracted by a record 21.7% in the April-June quarter. Britain’s GDP shrank by 1.6% in the first quarter of 2020.
- Brazil’s economy also experienced a 11.4% contraction in the three months ended June, following a 0.3% fall in output in the first quarter, pushing it into a recession.
What does the technical recession presage for the Indian economy’s outlook?
- The central bank has also warned of “formidable” risks to this upbeat outlook, the foremost being “the unrelenting pressure of inflation”.
- The RBI has cautioned that there is a real threat that price pressures could become more generalised, undermining the credibility of policy interventions.
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