Explained: How Indian economy stumbled, recovered since lockdown

2021-03-24 08:34:04

NEW DELHI: On March 24 last year, Prime Minister Narendra Modi announced one of the most stringent lockdowns in the world to curb the spread of coronavirus infections in India.
The pandemic not only prompted a major health crisis, but also endangered the largest economic shock, both in the country as well as globally.

According to the Economic Survey 2021, India’s humane policy response that focused on saving human lives, recognised that the short-term pain of an initial, stringent lockdown would lead to long-term gains — both in terms of lives saved and in the pace of economic recovery.

Gradually, as the restrictions started to ease, economic activities also picked up in a phased manner.
India’s first technical recession
The Indian economy witnessed its first ever technical recession in the year 2020, with gross domestic product (GDP) growth remaining in the negative territory for two consecutive quarters.
GDP contracted by a record 24.4 per cent in the first quarter of the last fiscal. This was majorly induced by stringent nationwide lockdowns during April and May which stalled economic activity, shut out consumption, investment and led to loss of jobs and income for many.

In the second quarter again, the GDP contracted but the pace of decline narrowed sharply. However, even with a 7.3 per cent contraction, crucial services segments remained in the negative zone.
However, with easing of Covid restrictions and resumption of business activities, India exited the technical recession phase in third quarter with a growth of 0.4 per cent.
Recovery of activities have also been reinforced by some degree of rollout of Covid-19 vaccines.
The centre now predicts annual GDP to contract by 8 per cent in the year 2020-21.
Globally, almost all countries resorted to lockdown to flatten the curve of the virus. This led to disruptions in businesses, ceasing of economic activities and confining people inside homes even for official work.
Thus, the pandemic pushed the global economy into recession.
The International Monetary Fund (IMF) described it as the worst decline since the Great Depression of the 1930s.

Job markets still recovering from pandemic blow
The coronavirus crisis proved to be a major blow for the job market too.
With businesses shut and activities coming to a halt, unemployment rate spiked to 23.52 per cent in April last year as several firms recorded job losses. It remained at 21.7 per cent in May.
According to the Centre for Monitoring Indian Economy (CMIE) data, the unemployment rate started tapering off from June onward when it was recorded at 10.2 per cent in the month and further improved to 7.4 per cent in July.
However, the unemployment rate again rose slightly to 8.3 per cent in August and improved to 6.7 per cent in September 2020.

The Centre took many steps to boost fresh hiring in the country. Unemployment was recorded at 6.9 per cent in February 2021 which is slightly better than 7.8 per cent in the same month last year and 8.8 per cent in March 2020.
Rise in number of billionaires
Even at a time when unemployment rate in the country was at its peak, the number of billionaires surged in India.
India now has 177 billionaires with 40 of them entering the coveted club during the pandemic-stricken 2020.
According to the Hurun Global Rich List, Reliance Industries chairman Mukesh Ambani continues to be the wealthiest man in India with a net worth of $83 billion.
Ambani witnessed a 24 per cent jump in fortunes and climbed up one spot to be the eighth richest man globally.
Similarly, Gautam Adani witnessed a spectacular rise in fortunes in the last few years. His wealth doubled to $32 billion in 2020. The Adani Group chairman climbed 20 places to be the 48th richest person globally and the second richest Indian.

Sensex in the last one year
The benchmark BSE sensex witnessed its biggest-ever plunge on March 23 as coronavirus-led lockdowns across the globe triggered fears of a recession.
Crashing nearly 4,000 points in a single day, the index closed at 25,981. Market capitalisation of BSE companies fell to Rs 101.86 lakh crore.

However, since then sensex has rallied over 25,500 points or nearly 98 per cent, largely backed by the stimulus packages announced by the government.
In just 10 months, sensex staged a massive comeback to breach the 50,000-mark on January 21, 2021.
Ironically, the stock market has seen more gains in the post-Covid period.

Both sensex and Nifty wrapped up 2020 on a bullish note and continue to be on an upwards trajectory in 2021 as well.
At present, the market capitalisation of BSE listed companies has jumped nearly 100 per cent to over Rs 207.89 lakh crore.
Economic measures announced by the government
Lockdowns and travel restrictions imposed significant supply-side constraints on the economy, drastically reducing output and employment.
Moving ahead with the sole objective of saving lives, the government announced multiple measures at different stages of the pandemic.
These included calibrated fiscal support focused on essentials during lockdown and demand push during the unlock phase; financial measures; and structural reforms.
The measures were equivalent to Rs 29.87 lakh crore or 15 per cent of India’s GDP. These were subsequently backed by initiatives to further strengthen the economy.

Details of the economic stimulus packages are as follows:

Measures undertaken by RBI
The Reserve Bank of India (RBI) also undertook several conventional and unconventional liquidity enhancing measures to manage liquidity situation in the economy.

Structural reforms announced by the Centre
Apart from economic reforms, the Centre also implemented various structural reforms in the country.
These covered sectors like agriculture, MSMEs, labour, power and industry.

Industrial activity witnessed V-shaped recovery
The headline purchasing managers’ index (PMI) plunged to a low of 27.4 in April last year.
Amid widespread business closures, demand conditions were severely hampered. New orders fell for the first time in two-and-a-half years and at the sharpest rate in the survey’s history, far outpacing that seen during the global financial crisis.
The PMI industrial data remained in contraction for four months till August 2020.

With phased easing of restrictions over time, a V-shaped recovery was observed in industrial production as manufacturing rebounded and industrial value started to normalise.
Latest data shows, manufacturing growth held steady in February at 57.5 on back of strong increases in new work intakes as firms lifted production.
Service sector recovering from pandemic lows
The services sector bore the brunt of the pandemic as hotels, restaurants, cinemas had been shuttered for the longest time and people stayed away due to the fear of infections.
The sector, which accounts for nearly 60 per cent of GDP, declined to its lowest level in 14 years in April 2020 as a result of the lockdown.

The services PMI plummeted to 5.4 in April and remained in contraction for the next six months as well. Gradually, with resumption of economic activities, the service sector expanded for the first time in eight months in October.
At present, the sector is witnessing its fastest growth in almost a year. Driven by extended robust recovery in domestic demand, services PMI rose to 55.3 in February 2021 — staying above the 50-level mark for the fifth straight month.
Prices and inflation
The headline consumer price inflation (CPI) has remained on a higher trajectory during the Covid-induced lockdowns and also in the subsequent period due to persistence of supply side disruptions.
Rise in inflation was majorly driven by rising food prices. Inflation witnessed a sharp rise to 9.1 per cent during the lockdown period.

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