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Monday, April 12, 2021

What does it mean for the Indian economy while India enters technical recession?

This latest contraction as India enters technical recession, in spite of central government lifting restrictions on commercial activity.

The Economic Analysts are considering a technical recession when the contracting value of economic activity persists for two consecutive quarters at least.

The National Statistical Office of India released economic data for the July-September quarter this week confirming that India was amidst a technical recession due to the coronavirus pandemic.

The Indian economy contracted by 7.5% in the last quarter followed by an unprecedented reduction of 23.9% in the previous quarter according to the National Statistical Office.

This latest contraction has taken place in spite of the central government has been lifting restrictions on commercial activity very gradually.

Now, what is a technical recession?

A distinguish between the recessionary phase and an actual recession. A recessionary phase is where the total produced value output falls from one quarter to the next, and this is often measured in GDP. This series of changing recession and expansion phases is known as the business cycle which lasts almost a year or a decade.

A recessionary phase is something that lasts for an unreasonably long time. The economy can be considered to fall into a recession if GDP there is a continuous contraction in the GDP.

In any economy, the recessionary phase is a corresponding item of an expansionary phase. The overall output of goods and services measured by GDP increases from one quarter to another, and that is said to be a recessionary phase.

Both these phases together create a ‘business cycle’ in the economy where a full business cycle can last anywhere between a year or a decade.

How to define a recession?

The National Bureau of Economic Research in the US stated that: ‘during a recession, a significant decline in the economic activity spreads across the economy and can last from a few months to more than a year,’ and this is what most economists tend to agree with.

Now, there isn’t any particular definition accepted by the universe about the recession. The question is before an economy is said to be in a recession, for how long should there be a GDP contraction?

Economic analysts consider recession to be a technical one when the value of economic activity persists due to contraction, for at least two quarters which is currently being witnessed in the case of the Indian Economy.

The long-lasting recession phases in a country’s economy which goes on for years can be termed as “depressions,”| like the one which the US faced in the 1930s, ever since then these depression periods have been rare.

At the start of October, India technically entered into a phase of recession, the UK has been in recession for three quarters consecutively and most of the countries’ economic conditions are in a recession.

The key solution for any country to come out of a recession phase is to control the spread of the COVID-19 pandemic.

The duration of the current recession will pivot on how successfully India will be able to stop the spread of the coronavirus pandemic, according to the general consensus.

Finance minister Nirmala Sitharaman is hoping that India’s recession could be over for this year and that it may register positive growth in the ongoing quarter.

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