Biggest Decline of any Major Economy!
In the first GDP contraction after 4 long decades, the Indian economy slumped by nearly 24 percent according to the official data released by the National Statistical Office (NSO) on Monday. It is the first time since 1996 when the government started publishing quarterly data, that the growth is this negative and marking the onset of the Indian recession. Given the current outlook, the rate of contraction in the financial year 2020-2021 will be the highest in post-independence India.
The COVID-19 pandemic has severely affected the global economy, but India’s contraction is the worst among the world’s top economies with the U.S. economy shrinking 9.5 percent in the same quarter and Japan’s 7.6 percent. Except for China, which reported a 3.2 percent rise in the April-June quarter, every other major economy plunged below 0 in the GDP growth.
India’s rather stringent lockdown as compared to the other countries brought the entire economic processes to an absolute halt. The lockdowns continued subsequently one after the other until Unlocks begun. PM Modi announced the first pan-nation lockdown in late March, ordering 1.3 billion Indians to stay home. The entire economic ecosystem stood still; businesses were shut, people lost jobs, etc.
Economists believe, once the impact on the vast “informal” and “unorganised” workforce is taken into account, the damage might be even worse in actuality. The fraction of people involved in this sector is enormous and also challenging to analyse statistically. However, the provisional data is in line with the macroeconomic indicators, but very likely underestimates the impact on the informal economy.
The lockdown period saw massive migrations of migrant workers to their hometowns and villages. The spread of the virus never stopped. The ailing economy pressurized officials to open up the economic activities, and thereby movement of people also begun. The lifting of lockdown restrictions furthered the infection. India is now recording the highest number of daily infections and is on number three in the total global tally.
In an interview with the Economic Times, India’s Chief Economic Adviser (CEA), Krishnamurthy Venkata Subramanian said, “The fraction of countries where the GDP per capita will shrink is the highest in 150 years since 1870… It’s a once in a one and half-century kind of event… 23.9 percent (contraction) is along the expected lines…” attributing the deceleration to “exogenous factors”, referring to the Covid-19 pandemic and the lockdown. In the words of the CEA, “India is indeed expecting a V-Shape recovery.”
Evident from the data of previous quarters, the economy had begun to slow down even before the pandemic. Earlier, in the GST council meet on Thursday, finance minister Nirmala Sitharaman had blamed India’s unprecedented economic slump on “an act of god”.
India was one of the world’s fastest-growing economy a few years ago. In 2019, India’s G.D.P. was around $2.9 trillion, making it the world’s fifth-largest economy, behind the United States, China, Japan and Germany. Considering the magnitude of the shrink, the recovery is going to be a big challenge for the government as well as the people. Let alone PM’s dream of $5 trillion economy, even if we somehow manage to recover soon that will be a considerable relief.