India Entering into Technical Recession First Time in History: RBI Report

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After two successive quarters of GDP contraction, India has entered what is called a technical recession in the first half of 2020-21, stated the RBI in the November 2020 issue of its monthly bulletin.

“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,” the bulletin stated.

The contraction is receded with gradual normalisation in economic activities and expected to be short-lived, the bulletin added.

It further stated that the economy rebounded sharply from May/June 2020 with the reopening of the economy, with industry normalising faster than contact-intensive service sectors. “The index tracks GDP dynamics closely and nowcasts GDP growth at (-) 8.6 per cent in Q2:2020-21.”

These highlights are from the Economic Activity Index for India which is based on 27 monthly indicators using a dynamic factor model. The RBI officials are attempting ‘nowcast model’ for the first time. This model is used to predict the present, the very near future and the very recent past almost on a real-time basis using regular high-frequency data releases on activity indicators.

GDP Nowcast Using the Activity Tracker

GDP Nowcast Using the Activity Tracker

It also stated in a period of heightened volatility, it becomes difficult to ascertain the current and future outlook of the economy posing difficult challenges for forward-looking policy. Thus, the nowcast model is attempted.

The article which was part of a bulletin stated conflicting signals emerging from diverse indicators may point to different directions for the underlying state of the economy. “The fact that official GDP estimates are available with a lag of almost two months does not help either.”

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