Of late, Indian economy news has retained a trending position. There has been a significant Indian economy slowdown in the last quarter, or the period spanning April-June. Indian economy shrank almost 24% and economists view it as the most substantial slump of any principal economy in the world. Scholars expressed concerns on the adverse effect of this economic shrinkage on the nation’s unorganized manpower, depicting themselves as the worst victims of this situation.
How India’s economy shrank in the 2nd Quarter
In the 2nd quarter (April-June, 2020), the Indian economy shrank by 23.9%. It was the biggest slump in decades. Lockdown restrictions intended to prevent the contamination of the coronavirus eliminated lakhs of businesses and jobs.
The economic slump experienced by India was the worst among all the major economies in the world. During the same quarter, the economy of Japan shrank by 7.6% and the US economy slumped by 9.5%. So, India took the hardest hit among all major economies.
On August 31, 2020, the Government of India published some data on the magnitude of the downfall in the GDP (Gross Domestic Product) for the June quarter. The worst hit sectors of the nation are – Manufacturing, construction, and transportation. The data released manifests the beginning of the profound economic collapse faced by India since 1996. This was the year when India first started releasing its gross domestic product statistics.
The Indian economy current situation has become additionally problematic owing to the reason that several people work here in unorganized sectors. This means that there is no job security and they don’t receive any benefits from the Indian government. Some prominent examples of these workers are tailors, rickshaw pullers, day laborers, and farmworkers.
Economists have stated that statistical data released by the government didn’t consider the unorganized sector seriously while preparing the statistics. The real picture might be even worse.
According to Aditi Nayar, an eminent economist working with ICRA (formerly, Investment Information and Credit Rating Agency of India Limited), the stringent lockdown resulted in a steep drop in business operations during the first quarter with severe unemployment being experienced by individuals, especially migrant workers. ICRA is an investment and credit rating agency based in New Delhi. If we can consider unorganized sectors, the economy would appear in a worse state, she said.
The same view was expressed by Arun Kumar, a professor at the Institute of Social Sciences, New Delhi. He opined that after considering the informal sectors, the all-inclusive economic slump can reach -40%.
At the end of March 2020, Narendra Modi, the Prime Minister of India, started one of the harshest lockdowns in the world, instructing all his countrymen to stay at home. This also brought the transportation sector to a standstill. Many businesses shut down their operations during this shrinkage period.
Millions of people who left their rural homes to come to the metropolitan areas for employment began going back home. However, as the troubled economy shrunk further, authorities eased some lockdown constraints to energize the business sector. So, there was some growth in transportation activities. However, this was a damaging move as the coronavirus spread everywhere in the country. Currently, India is posting the highest count of new daily infections in the world.
Only one or two years back, the country, accommodating 1300 million people, ranked among the top-growing economies in the world. It clocked the Indian economy growth rate of 8% or even higher.
However, before the pandemic, the economy started showing signs of decline. For instance, vehicle sales dipped 32% in August 2019, and this was the biggest plunge in around 20 years.
Private investment, consumer spending, and exports all were hit immensely. The sector comprising hotel, trade, and transportation sunk 47%. The manufacturing industry, which was the pride of India at one point in time, contracted 39%.
Agriculture was the only silver lining of these devastating effects of pandemic. This monsoon, India experienced a good volume of precipitation and as a result, the agriculture sector showed 3.4% growth against 3% in the earlier quarter.
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What’s the recovery plan for India’s economy?
Economic experts stated that the rising coronavirus cases in India might be further detrimental for revival. RBI, the apex bank, would be more stressed for extra rate reductions and the stimulus package.
As stated by economist Ms. Nayar, some segments of India’s economy have begun to revive. However, the increasing number of cases and the measures adopted to check them hinted at an irregular revival.
There were 3.6 million active cases in the country (the third-highest, following Brazil and the US). Approximately 80,000 new cases are occurring daily, and this is certainly an appalling figure, surpassing any other nation. Nonetheless, the mortality rate still is considerably low. Epidemiologists state that this may be an outcome of a younger populace as compared to other nations.
Throughout the country, several among the 28 states are vacillating between making economies available and unexpectedly confining them once more. Consequently, businesses are in a state of disarray and several customers are avoiding shopping malls and crowded marketplaces.
Prime Minister, Narendra Modi stated that he wishes India to turn into a US$ 5 trillion economy by 2024. Being the election year, he is anticipated to win for a 3rd consecutive term. India’s GDP was approximately US$ 2.9 trillion in 2019, making it the fifth-largest economy in the world, following the US, China, Japan, and Germany. However, this year, several economists feel that India’s economy can shrink by 10%.
Economists have expressed deep concerns and stated that the recovery would take longer than estimated and an additional stimulus package is necessary. The Ministry of Finance, Chief Economist, Krishnamurthy Subramanian, stated that India’s economy was geared up for a “V-shaped” revival. He also added that it must improve its performance in the next quarters. He suggested the improvement through a hike in power consumption, railways freight, and tax revenue.