India GDP Contraction Slows, Economy Enters Recession

India's economic contraction slowed sharply in the September quarter, but the economy entered a technical recession due to the impact of the harsh lockdown imposed to curb the spread of the coronavirus, or Covid-19, pandemic.

Gross domestic product fell 7.5 percent year-on-year, data from the statistics ministry showed on Friday.

The pace of decline was much slower than the record 23.9 percent contraction in the June quarter as lockdown restrictions were relaxed in the June quarter.

Economists had forecast an 8.8 percent contraction.

With GDP falling in two consecutive quarters, the economy entered a technical recession for the first time ever. In the same quarter last year, the economy grew 4.4 percent.

In gross value added terms, GDP dropped 7 percent in the September quarter versus a 22.8 percent drop a quarter ago.

Early this month, the Reserve Bank of India said the Indian economy contracted 8.6 percent in the quarter ended September and thus will enter a recession.

In the June quarter, growth in the farm sector remained stable at 3.4 percent. Manufacturing expanded 0.6 percent after a steep contraction of over 23 percent in the previous three months.

Output in the construction sectors and the services industries including trade, financial services, transport, communication and hospitality continued to decline, but at slower rates.

The decline in household spending and investments also slowed.

"Looking ahead, encouraging news on vaccines has brightened the outlook, but weak fiscal support and an impaired banking sector will continue to weigh on India's recovery," Capital Economics economist Shilan Shah said.

"Under these circumstances, monetary policy is likely to remain very loose for the foreseeable future, and we think markets are too hawkish in expecting modest rate hikes in 2022," the economist added.