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India GDP Falls At Record Pace Due To Covid-19 Pandemic

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India's economy contracted at a record rate in the April to June quarter as the lockdown restrictions imposed to battle the coronavirus pandemic hurt consumer spending and investments, preliminary data from the statistics ministry showed on Monday.

Gross domestic product decreased 23.9 percent year-on-year after a 3.1 percent increase in the January to March quarter. Economists had forecast an 18.3 percent decline.

The fall was the biggest since quarterly GDP data collection began in the 1990s.

In the same quarter of 2019, the economy had expanded 5.2 percent.

Manufacturing contracted a massive 39.3 percent in the April to June quarter and construction shrank 50.3 percent. Consumption decreased around 27 percent and investment slumped nearly 47 percent.

Government spending increased relatively modestly as the government announced several stimulus measures to support the battered economy.

While the April to June quarter is likely marked the bottom, economists expect any rebound in the economy, following the relaxation of the lockdown restrictions, to be slow over the coming quarters.

Recent purchasing managers' survey results failed to give any evidence of a strong recovery. Official data released on Thursday showed that core infrastructure output tumbled nearly 10 percent year-on-year in July.

Meanwhile, there is no sign of the pandemic abating. India's daily number of Covid-19 infections on Sunday was the highest for any country in the world.

"The underwhelming fiscal response to the crisis will guarantee a legacy of higher unemployment, firm failures and an impaired banking sector that will weigh heavily on investment and consumption," Capital Economics economist Shilan Shah said.

Capital Economics expect the country's real GDP to be 10 percent below its pre-virus trend at the end of 2022.

"The dire economic outlook means that, despite rising concerns over inflation, the RBI will continue its easing cycle in the coming months," Shah said.

The firm forecast a further 50 basis points of interest rate cuts in this cycle, which would take the repo rate down to a new record low of 3.50 percent.

Shah said the RBI will likely keep policy looser for longer than investors are pricing in.

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