TRACKING INDIA'S ECONOMY POST LOCKDOWN
The Vastavik explores the effects that the lock down- which lasted the entire first quarter for India’s fiscal year, had on the Indian economy, as well as the road to recovery and what comes ahead for Indians.
"We shall go with greater momentum in getting privatisation—that which has been cleared by the cabinet--to go forward" - Finance Minister Nirmala Sitharaman
On 24 March 2020, the Indian Central Government ordered a 21-day lockdown across the nation, marking the beginning of the nationwide battle against COVID-19. The 21-day lockdown was extended thrice, finally ending on 31 May, following which restrictions were eased gradually over various “unlocks”. While the lockdown aided in curbing COVID-19 in India, it also came with unwelcome side-effects, the biggest being the adversely affected economy.
Statistical Decline of the Economy
India has been proclaimed by financial experts worldwide to be the world’s fastest-growing economy.However, with the imposition of lockdown roughly at the beginning of the first quarter, the GDP (Gross Domestic Product) fell 24% as compared last year. The World Bank said that the current pandemic has "magnified pre-existing risks to India's economic outlook". The carpeted hallways at the Reserve Bank of India saw a flurry of activity as bankers were sent into a frenzy by the data coming in. But it wasn’t only bankers in suits who were panicking. The general public was too. Unemployment peaked in April at a staggering 23.5%. Factories were shut down and workers laid off. Millions of workers, including both white-collar and blue-collar workers, across the country lost their sources of income.
With the population confined to their homes and the closure of shops, factories, malls, and roadside stalls, there was a sharp decline in the amount of cash being circulated in the economy. This dark cloud could, however, have a silver lining. With the closure of all non-essential businesses and services, it is safe to assume that households with a steady source of income have been saving more money than before. Data from the United States has confirmed that such a phenomenon is indeed occurring in suburban America, and it is reasonable to expect that the same is happening across India's middle class.
In the midst of all this, India lost control over one of its biggest assets:the world’s second-largest consumer base. Consumer confidence plunged during lockdown. The RBIs monthly report on consumer confidence reported the following:
“Consumer perception on the general economic situation, employment scenario, and household income plunged deeper into [the] contraction zone, while expectation on the general economic situation and employment scenario for the year ahead were also pessimistic.”
So how was the average Indian household doing at those times? By analyzing data, we can see that government benefit schemes are being availed much more, but these small cash transfers are meager compared to the total income of an average household, and likely were not much help. However, we cannot exclude the possibility of other government schemes which are not direct benefit. These include schemes such as MGNREGA which ensures employment in rural areas, as well as the surprisingly effective Public Distribution System which does transfers in kind. These schemes may have stabilized lower-income households to a greater extent than expected.
Will Anything Improve?
Analysts have gone through mountains of data from across the country and the general perception of recovery shows that India is possibly heading towards a “V-shape recovery” where all the fields which experienced a sharp decline (GDP, Consumer Confidence, Industrial Production, etc) are heading towards a sharp incline post lockdown.
India’s recovery trajectory is going to be weak as the country is struggling to get past the peak of the pandemic, according to Priyanka Kishore, head of India and Southeast Asia economics at Oxford Economics. She also said India’s fiscal policy response has been “quite meager” compared to the stringency of the lockdown. Her report projects India's economic growth rate at 4.5%, compared to 6.5% pre-lockdown.
The RBI themselves have published reports which say that the country is technically in a recession. Official data from the RBI is due on November 27. The International Monetary Fund has predicted that by the end of India's financial year, GDP will have shrunk by 10.3%, casting a shadow of doubt on Prime Minister Modi’s commitment to uplifting India's economy to $5 trillion by 2025
The Government has been attempting to mitigate the financial decline of the country ever since the end of lockdown on 31 May. They have even been more or less successful in their attempt. As of November, unemployment has gone down to the same levels it was at before the lockdown, which is about 7%. Indian stock market indexes are also higher than they were last year at this time. Other indicators have also forecast a very successful kharif season for the agricultural sector, which is a major part of the national and local economy in India.
On May 12, during a nationwide broadcast, Prime Minister Narendra Modi announced a support package worth 226 billion USD. This package will mainly be used towards revitalizing the economy and helping those who lost their sources of income, especially farmers and daily wage earners.
“The package will also focus on land, labor, liquidity, and laws. It will cater to various sections including cottage industry, medium and small enterprises, laborers, middle class, industries, among others,” said the Prime Minister .
However, the Government was criticized for only announcing intent and not taking concrete actions. PM Modi has said that he hopes to make India a bigger player in the global supply chain which has been dominated by China for many years. But the Chinese monopoly seems to be ending during this pandemic.
There has also been a steady increase in industrial activity with more incoming port traffic and freight coming in. The worlds biggest international shipping companies and airlines were allowed to resume operations throughout India, albeit with strict adherence to COVID-19 protocol. Union Finance Minister Nirmala Sitharaman has also said that the economy is being visibly revived and that India is already at pre-lockdown capacity utilization. Each “Unlock” guideline issued by the Govt since June 1 has been focused on gradually reopening businesses and services.
The Finance Minister also mentioned that all indicators look positive across every state. Electricity requirements of many agricultural states increased in the months succeeding lockdown, which is likely due to an increase in farms and factories becoming operational.
An Unequal Resurfacing
Many states like Kerala, Punjab, Haryana, Karnataka, and many more showed an increase in activity based on the increase of traffic, data from Google, the abundance of farm products in wholesale markets, etc. As factories became operational, industrial output increased and unemployment decreased. This upward rise in activity was not so apparent in states like Maharashtra, Delhi, Gujarat, or UP. This was mainly due to the fact that these states were struggling with the pandemic for longer than other states.
Experts have also pointed out that rural India fared much better than its urban counterpart both during and after the lockdown. Because of the low population density, and the fact that not many people are needed on a farm, physical distancing is much easier. However we cannot ignore the severe lack of adequate public health facilities in rural areas. But with all factors considered, the agricultural sector could potentially be the spearhead on India’s path towards revitalization.
In conclusion, after ending the lockdown, the economy saw sharp improvements in industrial output, businesses and services, agriculture, etc. However, many other areas have not yet returned to pre-lockdown levels, although they do seem to be on track to be there by January 2021. The recent news about the impending availability of successful vaccines is certainly good news for the Indian economy and those working under it. A vaccine will boost India on the road to recovery and hopefully propel it beyond pre-lockdown levels, albeit at a slower rate than before.
Speeches and interviews from the Bloomberg New Economy Forum 2020