As per the data released by the Ministry of Statistics and Programme Implementation for the second quarter (June-September) GDP estimates, the Gross Domestic Product of the country has declined by 7.5 percent compared to the same quarter of the previous year.
Most of the media houses repeated the same argument of technical recession (two consecutive quarters of negative growth) because it steals more eyeballs, as far as the headlines are concerned. However, one interesting caveat here is that the GDP declined by 7.5 percent when compared to the same quarter of the last year, not when compared to the last quarter of the ongoing fiscal year.
India still follows the old method to study the GDP growth rate, by comparing the same quarters of the present and previous years because it is still a heavily agrarian economy, and given the fact that agricultural production varies from season to season, it is best suited for India.
But, the Coronavirus-induced lockdown was an ‘abnormal time’ for the country as it was under complete lockdown in the first quarter (April-June) of this fiscal year, and then the nation unlocked in a phased manner in the second quarter (July-September) of the year. Therefore, for the Coronavirus year (FY 21), it would be better to compare one-quarter of the GDP with the previous quarter of the same fiscal year because it will present a better picture of where the economy is progressing in such uncertain times.
When compared with the first quarter of this fiscal year, the GDP grew by 23 percent in the second quarter. The total output of the country in the first quarter of the ongoing fiscal year was 26.89 lakh crore rupees while that of the second quarter is 33.14 lakh crore rupees, so when compared with the previous quarter, GDP actually grew by 23 percent.
Those finding it funny, this is a screen-grab from Forbes. Media is only highlighting the negative growth qtr and the fact that India has technically entered recession (due to 2 back to back negative growth quarters). India will record positive growth in the next qtr for sure. pic.twitter.com/xc2cyzU7Hn
— Atul Mishra (@TheAtulMishra) November 27, 2020
For a fiscal year in which the economy is treading on an uncertain path and nothing is ‘normal’ as compared to the previous year, it would be stupid to compare the quarterly growth of this year with that of the previous. Therefore, to get the right picture of the economic growth and how effective the re-opening of the economy has been, it would be wise to compare this quarter’s growth with that of the previous one. And when compared through this metric, the GDP actually shows a growth rate of 23 percent.
Similarly, when the GDP growth data of the third quarter would be released (probably on February 28), we should compare it with the GDP of the second quarter of the ongoing fiscal year instead of the third quarter of the last fiscal year, because it would give us a better picture of the same. The third-quarter GDP would be encouraging even when compared to the previous year (thanks to pent-up demand), but we must compare it with the previous quarter for the simple reason- which is that it would present a better picture of the economy amid the Coronavirus induced lockdown.