India’s economy contracts 12 per cent in Q1: Report

The economic activity has contracted an average of 12 per cent in the June 2021 quarter as compared to 23.9 per cent contraction in June 2020 quarter. Read all you need to know.

Created On: Jun 17, 2021 16:34 IST
Indian currency notes, Source: PTI
Indian currency notes, Source: PTI

The Swiss brokerage UBS Securities India on June 17, 2021, reported the lockdowns imposed during April and May 2021 in the wake of the second wave of the pandemic led to the country’s economy contracting 12 per cent in the first quarter of FY22.

In 2020, the first quarter contracted 23.9 per cent. The economy witnessed its worst contraction in FY21 at 7.3 per cent as the Centre announced 2.5 months of unplanned lockdown at just a four-hour notice. This crippled the economy in the first quarter registering a 23.9 per cent contraction that subsequently improved to 17.5 per cent in the second quarter.

Moving ahead, the economy showed a sharp V-shaped recovery from the second half when it posted a 40 bps positive growth and clipping at 1.6 per cent in the fourth quarter thereby containing the overall contraction at 7.3 per cent for the year.

What would a 12 per cent point contraction mean for the economy?

• Tanvee Gupta Jain, the economist at the Swiss brokerage said that the data from UBS-India activity indicators suggest that the economic activity has contracted an average of 12 per cent in the June 2021 quarter as compared to a 23.9 per cent contraction in June 2020 quarter.

• This is despite the indicator rebounded to 88.7 in the week to June 13, up 3 per cent week-on-week after many states eased localised mobility restrictions from the last week of May, she added.

Will the economy see a recovery? If yes, how will it look like?

• The report further states that with this 12 per cent contraction, the economy will not see a sharp V-shaped recovery this time around unlike last year. The consumer sentiment remains very weak this time around as people are more panicked about the pandemic as compared to the previous year.

• The Swiss brokerage expects a sequential pick-up in the economic activity from June but overall, the economy will gain traction only from the second half.

• The economy is expected to recover gradually this time unlike the V-shaped recovery in 2020. Jain added that the brokerage expects the economy to gain momentum from H2 due to the ramping up of vaccination and increasing consumer and business confidence.

• During the second wave of the pandemic, the lockdown lasted a little longer than the 2.5 months lockdown during the first wave. Limited construction or industrial activities were allowed this time.

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