India’s Economy Contracts 24 Percent In First Quarter

September 2, 2020 | Investopaper

India’s economy shrank by a historic 24 percent in the first quarter of this fiscal year. The economy witnessed a fall of 23.90 percent in the first three months (April-June) of the fiscal year 2020-21.

Economists in India have estimated that India’s economy will shrink by an average of 10 percent in the current fiscal year. However, the contraction in the first quarter was much higher than expected. Among the various sectors of the economy, the most serious impact has been seen in the construction sector. India’s construction sector shrank by 50.3 percent in the first quarter.

Similarly, trade, hotels, transportation and communications contracted by 47 percent. The manufacturing sector has shrunk by 39.3 percent. However, the agricultural sector is boosting India’s economy. The agriculture sector grew by 3.4 percent in the first quarter, according to the statistics office.

According to data released on Monday, the eight major sectors of the economy shrank by 9.6 percent in July. These areas had shrunk by 12.9 percent in June. However, in addition to July, the data showed that those areas had contracted for eight consecutive months.

Analysts have speculated that the contraction will encourage the Reserve Bank of India (RBI) to cut interest rates further. However, that will lead to higher inflation in India. The Indian government had announced a stimulus package of Rs 200 Kharba to free the economy from the effects of Covid-19. Experts say the government should announce an additional package for revival.



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