When the Indian economy faces a downfall for two consecutive quarters and this results in the decreased GDP of the country, it is said to be a state of Technical Recession.
The Reserve Bank of India releases the monthly RBI Bulletin, wherein, it mentions the current statistics and state of the economy, based on which the growth or downfall can be analysed.
Why is it in the news? (as of 2020)
During the first and second quarter of 2020-21, and the spread and effects of the Coronavirus pandemic, the Indian economy faced a big blow and it was in a state of a technical recession. However, by October-December 2020-21 quarter, the economy had started regaining itself and India moved out of the phase of a technical recession.
In this article, we shall discuss at length the effects, causes, and consequences of a technical recession and the state of the economy as per RBI during the different quarters of 2020-21. IAS Exam aspirants must carefully go through the article as questions based on the same may be asked in the final exam.
Technical Recession in India [UPSC Notes]:-Download PDF Here
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What is a Technical Recession?
When the overall output of goods and services, which is typically measured by the Gross Domestic Product (GDP), decreases from one quarter to another, the economy is said to be a phase of a technical recession.
What is Nowcasts by RBI?
From 2020, RBI has started dedicating a chapter to the “State of the Economy”, in the monthly RBI Bulletin, with an aim to indicate the key aspects of India’s economic health. As a part of this, India has started “nowcasting” or “the prediction of the present or the very near future of the state of the economy”. In its very first prediction, nowcast had predicted the Indian economy’s contraction by 8.6% in the second quarter (July, August, September) of FY 2020-21.
What is the Difference between Recession and Technical Recession?
Given below is a tabulated difference between a recession and a technical recession:
| Recession | Technical Recession |
| If the recessionary phase lasts for a longer period of time, then the economy is said to be in a state of recession | If there is a back to back decline in the GDP for two quarters, the economy is said to be in a state of a technical recession |
| It lasts for a longer period of time | It lasts for a shorter period of time |
| All aspects of the economy, including GDP, employment, etc. are measured to reach the state of recession | Only GDP is the criteria to measure technical recession |
Read the detailed Union Budget 2021-22 announced on February 1, 2021, by Finance Minister Nirmala Sitharaman at the linked article.
Technical Recession – State of the Economy
- The COVID-19 pandemic had hit the entire world towards the end of 2019 and then severely affected the global economy. In India, the GDP had contracted massively during the first two-quarters of the FY 2020-21. The GDP had contracted by 24.4% and 7.3% in the April-June and July-September quarters, respectively, marking a technical recession in the aftermath of the Covid-19 pandemic
- By the third quarter, there was an increase of 0.4% in GDP, which helped the Indian economy move out of the technical recession. Major sectors which contributed to the increased GDP were electricity, agriculture, crude oil, natural gas, refinery products, etc.
- In 2020, the unemployment ratio soared to an all-time high, and also affected the stock market.
- The image given below shows the predicted GDP forecasts 2020-21 of India by different organizations (as per RBI Bulletin January 2021):
- The sectors which continued to register a downfall in terms of GDP during the third quarter of FY 2020-21 includes mining, trade, hotels, transport, communication and broadcasting services, and public administration services
- A major boost to the Indian economy during 2020 was the introduction of the Atmanirbhar Bharat Campaign by Prime Minister Narendra Modi
- The Production-Linked Incentive (PLI) scheme will also pave way for a speedy recovery of the economy
Important Economic Terms related to Technical Recession
- Gross Domestic Product (GDP) – It is defined as the sum of the final prices of the goods and services produced in an economy in a given period. It is evaluated regularly to account for changing production structure, relative prices, and better recording of economic activities. Get detailed UPSC notes on GDP in India at the linked article.
- Expansionary and Recessionary Phases – When the GDP increases from one quarter to another, then the economy is said to be in an expansionary phase. On the other hand, if the GDP contracts from one phase to another, then the economy is said to be in a recessionary phase
- Depression – A deep and long-lasting period of negative economic growth is said to be the period of depression in the economy. Candidates can also read about The Great Depression [1929-1939] at the linked article.
Technical Recession in India [UPSC Notes]:-Download PDF Here
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