What is a recession in Indian Economy?
A recession is a macroeconomic word for a sharp fall in overall economic activity in a particular area.It has generally been identified as two consecutive quarters of economic contraction, as shown by the GDP along with monthly signs such as an increase in unemployment.
However, according to the National Bureau of Economic Research (NBER), the two consecutive quarters of declining real GDP, which officially announce recession, are no longer how recessions are characterized. According to the NBER, a recession is characterized as a major drop-in economic activity that affects the entire economy and lasts for more than a few months. This reduction is typically reflected in real GDP, real income, employment, industrial production, and wholesale-retail sales.
Indicators of recession
A recession cannot be foreseen in a single method or at a single time. In addition to two consecutive quarters of GDP contraction, economists look at several indicators to decide whether a recession is about to start or is already underway.
In the opinion of many economists, a few widely recognized predictors may indicate a potential recession when they come into play.
The first category is made up of leading indicators, which typically change their growth rates and trends before comparable changes in macroeconomic trends. These include the Treasury yield curve, the OECD Composite Leading Indicator, the Conference Board Leading Economic Index, and the ISM Purchasing Managers Index. These can provide early warning of a recession, making them extremely significant to investors and commercial decision-makers.
Second, there are officially released data series from several government organizations that cover important economic sectors, like housing statistics and capital goods new orders data. This data is primarily used to construct the components of GDP, which will ultimately be used to determine when a recession begins; changes in these statistics may slightly precede or move concurrently with the commencement of a recession.
Finally, lagging indicators, such as an increase in unemployment rates, might be used to establish a recession's onset after it has already started.
Causes of Recession
The main economic theories of recession concentrate on the monetary, psychological, and economic fundamentals that might cause the chain reaction of business failures that makes up a recession.
· Psychological factors of a Recession: Economists commonly point to psychological aspects as contributing to recessions. The economy reaches its apex during the boom years due to investor overconfidence. At the very least, the mutually reinforcing pessimism that follows a market fall intensifies the influence of actual economic and financial causes as the market fluctuates.
An economic downturn is frequently brought on by the irrational expectations of investors, businesses, and consumers. This is because all economic actions and decisions are, in some way, always forward-looking.
· Economic Factors of a Recession: Some economists claim that basic economic shocks, such as supply chain disruptions, which can harm various industries, are the only factors that create recessions. Shocks that affect important sectors of the economy, like energy or transportation, can be so pervasive that they force numerous businesses to simultaneously cut down on employment and investment plans, with repercussions for consumers, employees, and the stock market.
Financial markets can also be related to certain economic aspects. Market interest rates reflect the cost of financial liquidity for firms as well as consumer, saver, and investor choices for the present vs the future. Additionally, the artificial suppression of interest rates by a central bank during the years of economic expansion before a crisis distorts financial markets and influences company and consumer behavior. Over time, any one of these elements could trigger a recession. The choices made by consumers, savers, and investors, in turn, set boundaries on how far such an artificially driven boom may go. These show up as monetary restrictions on expanding labor shortages, supply chain bottlenecks, and increases in commodity costs (which lead to inflation). A wave of business failures could result from higher manufacturing costs if there aren't enough resources to sustain all of the business investment plans. This circumstance might be sufficient to cause the economy to enter a recession.
Impact of Covid-19 Pandemic on the Economy
The National Bureau of Economic Research (NBER) declared in February 2020 that their data indicated that the United States was in a recession due to the economic shock caused by the widespread disruption of domestic and international supply chains and direct harm to businesses in all sectors. Both the public health response and the COVID-19 outbreak were to blame for these occurrences. The overstretching of supply chains, precarious company models, and razor-thin stocks were some of the underlying reasons for the two-month recession (and financial hardship) in 2020. The financial hardship brought on by the pandemic is still affecting Americans, according to NBER, even though the recession associated with the virus ended in later months.
What is going to happen to India?
According to a report by Deloitte, India is expected to grow by 7.1%-7.6% in FY22-23 and 6%-6.7% in FY23-24.
In the upcoming years, this will guarantee that India will continue to have the fastest-growing economy in the world, boosting global growth even as several large economies prepare for a slowdown or perhaps a recession.