Has COVID paralysed already staggering Indian economy?

Like many other countries of the world, India too, has been badly hit by the corona pandemic. The government had imposed
Has COVID paralysed already staggering Indian economy?

Dr. Dimpee Lahkar

(The writer is a Demonstrator, Pathology, TMCH.

She can be reached at daina59@rediffmail.com)

Like many other countries of the world, India too, has been badly hit by the corona pandemic. The government had imposed a nationwide lockdown from 25 March, 2020 to curb the spread of COVID-19 infection which adversely impacted all sectors of the economy. Corona, no doubt, will end eventually. But, it is rather a matter of serious concern as to what will be the aftermath of this pandemic in our country. Let's try to understand this situation a bit in details.

As a matter of fact, India's growth had slowed even before the pandemic struck. The contraction followed tepid 3.1 per cent growth in the previous quarter, which was the worst performance in at least eight years, the National Statistical Office said. GDP at Constant (2011-12) prices in Q1 of 2020-21 is estimated at Rs 26.90 lakh crore, as against Rs 35.35 lakh crore in Q1 of 2019-20, showing a contraction of 23.9 per cent as compared to 5.2 per cent growth in Q1 2019-20. This is also the first time the Indian economy has contracted since the government began releasing the quarterly growth estimates in 1996-97.

Corona led to the contraction of our country's economy due to many obvious reasons. The Indian economy contracted the most in the given quarter followed by the UK (20.4 per cent), Spain (18.5 per cent), Mexico (17.1 per cent), France (13.8 per cent) and Italy (12.8 per cent).

The growth rate may come down to 7.4 per cent a year later. India's GDP shrank by the steepest ever 23.9 per cent in the April-June period as the corona virus lockdowns battered an already slowing economy. According to the data, gross value added (GVA) growth in the manufacturing sector contracted by 39.3 per cent in the first quarter of 2020-21, from 3 per cent expansion a year ago.

However, farm sector GVA grew at 3.4 per cent, compared to 3 per cent in the corresponding period of 2019. Agriculture was the only outlier as all other sectors, including manufacturing, construction and services, suffered steep declines. The agriculture and allied activities sector was the only bright spot in the first quarter. The sector, which was excluded from the lockdown restrictions, grew by 3.4 per cent on the back of a healthy rabi harvest. A good monsoon, coupled with healthy sowing of the kharif crop suggests that it may well continue to grow at a relatively healthy pace. Agricultural output remains largely unaffected by coronavirus outbreak, to grow at 3%, India will successfully register record production of food grains at almost 300 million tonnes.

Construction sector GVA contracted by a whopping 50.3 per cent from 5.2 per cent expansion earlier. Mining sector output declined at 23.3 per cent, as against a growth of 4.7 per cent a year ago.

Electricity, gas, water supply and other utility services segment too shrank by 7 per cent in the first quarter of 2020-21, against 8.8 per cent growth a year ago.

Similarly, trade, hotel, transport, communication and services related to broadcasting declined by 47 per cent in the first quarter from 3.5 per cent growth earlier.

Financial, real estate and professional services fell by 5.3 per cent in Q1 FY21 from 6 per cent growth in same period last fiscal.

Public administration, defence and other services too saw a decline of 10.3 per cent during the quarter under review, from 7.7 per cent growth a year earlier.

The Centre began easing the lockdown for certain economic activities from 20 April onwards.

The manufacturing sector collapsed by 39.3 per cent, while construction activities fell by a staggering 50.3 per cent. On the services side, sectors such as aviation and hospitality fared badly, with the trade, hotels, transport and communication sector declining by 47 per cent. The continuous uncertainty over income and job prospects, coupled with the fear of contracting the virus in crowded places is likely to continue to weigh down household spending, especially discretionary spending.

In such a downside scenario, Moody's expects India's growth to fall to 5 per cent in 2020, China (3.7 per cent) and the US (0.9 per cent).

Weeks after cutting India's sovereign rating, Moody's on Monday said that India's gross domestic product (GDP) will contract 3.1 per cent in 2020 due to the coronavirus-led nationwide lockdown. The global rating agency, however, added that economic growth may bounce back to 6.9 per cent in 2021 as gradual recovery is expected to start from the second half of this year.

According to Moody's global macro outlook report for June, the global economy has started showing signs of life, but the "recovery will be long and bumpy". The effects of lockdowns will be larger.

It is a matter of primary concern that the Asian countries are particularly vulnerable to changes in geopolitical dynamics. China's clashes with countries bordering the South China Sea, India suggest geopolitical risks rising for the entire region. Moreover, COVID-19 crisis has escalated tensions on trade and technology between the US and China which is likely to persist after US presidential election in November. The Phase 1 trade deal between the two nations remains at risk, while progress on Phase 2 remains uncertain at best, it added. Up to a large extent, it will impact the Indian industry. In imports, the dependence of India on China is huge. Around one-third of machinery and almost two-fifths of organic chemicals that India purchases from the world comes from China. For automotive parts and fertilisers China's share in India's import is more than 25%. Around 65 to 70% of active pharmaceutical ingredients and around 90% of certain mobile phones come from China to India. Therefore, we can say that due to the current outbreak of coronavirus in China, the import dependence on China will have a significant impact on the Indian industry.

According to a FICCI survey, unless a substantive economic package is announced by the government immediately, Indian industrial sector may find it a Herculean task to revive to its old self again. Hoping to avoid more serious economic damage, Modi government in May announced a $266 billion stimulus package, but consumer demand and manufacturing are yet to recover. It did not help when Finance Minister Nirmala Sitharaman submits to the crisis and washes her hands off by terming it an 'act of god'.

There are hopes for a tentative recovery in the next quarter as tens of thousands of migrant workers who returned to their villages after losing jobs during the lockdown slowly return to cities as more workplaces open up. But the picture remains grim for many of the jobless. About 19 million salaried people have lost their jobs since the 68-day lockdown began in late March, according to the Centre for Monitoring Indian Economy, an independent think tank. Leading economic indicators suggest that parts of the economy have continued to improve sequentially. However, hopes and expectations of a quick bounce back to pre-COVID levels in the near term are likely to be dashed, with indications of some economic activities plateauing at below pre-COVID levels. While the pace of contraction may well ease, the near term prospects don't appear to be promising.

With the number of COVID-19 cases are still rising, and localized lockdowns continuing, self-imposed curbs by individuals, coupled with risk-aversion by both households and businesses, suggest that normalization of activities to pre-COVID levels is unlikely in the near term. Although many coronavirus restrictions have been gradually lifted, the strain on the economy is expected to continue and would take a longer time than expected to return back to near normal.

(Data source: Internet) 

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