India's recession will end in the current quarter: ICRA

New Delhi: The Reserve Bank of India declared that India had gone into recession after the economy contracted for two straight quarters, between March and October 2020, due to the pandemic and the lockdowns that followed. However, Aditi Nayar, Principal Economist at the ratings agency, ICRA, told Business Insider that good news is on the way and India’s recession will end in the current quarter i.e. January to March 2021.

The unhinged rally in the stock markets, where Sensex breached 50,000 for the first time on Jan 21, is fuelled by this optimism. “For the third quarter as a whole, we've got most indicators having shown a year-on-year expansion, and that again is something that's really important as an import for economists like me who need to figure out whether we are already, out of the recession or we are going to get out of the recession in the current quarter,” said Nayar.

But Nayar isn’t the only one rejoicing the recent turn in economic data. In an interview with Business Insider, Nilesh Shah, MD of Kotak Mahindra Asset Management Fund⁠— also a part-time member of the Prime Minister’s Economic Advisory Council⁠⁠— cited the spike in GST collections ⁠— a record high in December ⁠— aside from data from the Google mobility index and the RBI’s foreign exchange reserves to show that all is relatively well. “Put all of this data together, we are seeing a month-on-month improvement in the economy,” Shah explained.

Industrialist Kumar Mangalam Birla too in a recent note on LinkedIn too pointed out the “swiftness with which we have seen recovery play out across sectors”.

A recent article authored by experts at India’s central bank too shared the views that the recent shifts in the macroeconomic landscape reflect that the “GDP (is) in striking distance of attaining positive territory and inflation easing closer to the target.”

The recovery, though welcome, has been quite surprising for India’s economists like Mahesh Vyas, Managing Director and CEO of Centre for Monitoring Indian Economy. “The recovery has been much better than expected. No one expected the recovery to be as robust as it has indicated to be,” he said.

The economy is recovering but not evenly

But it is to be kept in mind that the data continues to represent the organised economy and India’s informal economy is still in pain. “There is a recovery in the organised sectors and there is stress in the unorganized sector. Because of the stress of the unorganized sector, they are vacating their spaces as they are unable to maintain their business, the larger sector is then taking on that space. This recovery is then creating more inequality in the country,” said Vyas.

On that note, about the stress in India’s informal economy, Nayar and Vyas are on the same page. The economist from ICRA, too, said that the budget must focus on supporting the small businesses, service providers like people who worked in our offices or the people who worked as a support staff at restaurants that we stopped going to, whose livelihoods have disappeared due to the shifts brought by the pandemic.

For example, while we cheer the fact that millions of children are able to attend classes from home, the school bus drivers are out of job. This may not always get captured in the GDP calculation effectively.