The Hindu Explains | What is technical recession, and what does it mean for the Indian economy?

The story so far: The Reserve Bank of India’s latest monthly bulletin features an article by an official at its Monetary Policy Department titled ‘An Economic Activity Index for India’, where the author has, in a ‘nowcast’, projected that India’s GDP contracted by 8.6% in the July-September quarter of the financial year ending in March 2021. Thus, “India has entered a technical recession in the first half of 2020-21 for the first time in its history with Q2:2020-21 likely to record the second successive quarter of GDP contraction,” wrote the article’s author Pankaj Kumar. The most significant difference between a ‘technical recession’ and a ‘recession’ is that while the former term is mainly used to capture the trend in GDP, the latter expression encompasses an appreciably more broad-based decline in economic activity that covers several economic variables including employment, household and corporate incomes and sales at businesses. Indonesia, for instance, slid to a recession for the first time in two decades as real GDP in Southeast Asia’s largest economy shrank 3.49% in the three months ended September. The RBI’s bulletin which flags the technical recession, however, also goes on to observe that economic activity in India has recovered, and says, “The contraction is ebbing with gradual normalisation in activities and expected to be short-lived.” In another article in the same bulletin, titled ‘State of the Economy’, the central bank has prognosticated that based on data for the month of October and signs of an uptick in consumer and business confidence “there is optimism that the revival of economic activity is stronger than the mere satiation of pent-up demand”.