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THE TECHNICAL RECESSION : Should India be worried

By | Maroof Wani &
Nazima Sofi 


Covid-19 has sent shock waves across globe .it has caused serious economic uncertainties to
the developing countries like India . According to the world bank 90 percent of the countries
would be in recession in 2020. Earlier in the quarter of April to june  experts calculated  the
contraction of 23.9% in GDP of India for the first time. Following the 3rd quarter of July –
August and September RBI has now predicted the contraction of 8.6% to India’s GDP yet
again which means the economy is in a technical recession. Unfortunately, government has
shifted all its focus on Bihar and Bengal elections.
What is a Recession?
when the GDP contracts from one quarter to another, the economy is said to be in a
recessionary phase.At its simplest, in any economy, a recessionary phase is the counterpart
of an expansionary phase.In simpler terms, when the overall output of goods and services
— typically measured by the GDP — increases from one quarter (or month) to another, the
economy is said to be in an expansionary phase.And when the GDP contracts from one
quarter to another, the economy is said to be in a recessionary phase.Together, these two
phases create what is called a “business cycle” in any economy. A full business cycle could
last anywhere between one year and a decade.
Typically, recessions last for a few quarters. If they continue for years, they are referred to as
“depressions”. Depression is a deep and long-lasting period of negative economic growth,
with output falling for at least 12 months and GDP falling by over 10% or it can be referred
to as a severe and prolonged recession.
RBI ‘s ” Nowcast”
India’s economy is likely to enter a recessionary phase for the first time ever in the second
quarter (July-September) of the current financial year, with the Gross Domestic Product
expected to contract by 8.6%, the Reserve Bank of India said in a bulletin released a week
before . Indian economy is said to hit recession for the first time because  its GDP growth is
negative for two consecutive quarters.  This recession, driven by the Covid-19 pandemic, is
unique.

Unlike past recessions, it is not driven by oil price shocks or a financial crisis. The
contraction in the production of goods and services has resulted not from an inherent
weakness in the economy, but because of executive decisions. Although it has created both
demand and supply problems, predictions of a multi-year impact on economies may be
excessively pessimistic. Previous recessions were often triggered by permanent shocks.
India thus requires a longer adjustment period to reach the new equilibrium. India’s
economy had contracted by an unprecedented 23.9% in the first quarter (April-June) of this
financial year, after being hit by the coronavirus pandemic and the subsequent economic
slowdown.

In an article titled “State of the Economy”, the central bank in its bulletin,
“nowcast” the contraction in the second quarter based on quarterly results declared by 887
non-financial listed companies, whose sales remained in contraction in the second quarter. 
Major concerns 
Besides the contraction there is the risk  of high inflation because retail inflation in
September rose to 7.34%, the highest since January, and well above the RBI’s mandated
range of 2% to 6%.
Apart from the price rise scare, there are two more concerns, that of a second wave of the
virus and a “stress intensifying among households and corporations . The second wave of
Covid-19 can have an effect on collapsing external demand, while the stress in households
and corporations ran a risk of spilling over to the financial sector.Industrial production has
actually shrunk in recent months, as has the production of capital goods. Electricity

generation has also slowed by more than gross domestic product growth. The immediate
solution to this crisis is to stop covid-19 pandemic. 
The Indian economy was already in a bad shape, reeling under the long-term effects of
Demonetisation and a hasty implementation of an ill-conceived GST plan. COVID-19 came as
the proverbial Black Swan to hammer the nails into India’s economic engine.Unless the
Government of India acts fast and listens to those who advocate wage-led growth, India is
looking at famines, mass starvations, massive uptick in crime rate, total civil unrest, collapse
of law and order and a total decimation of the system.