A challenging picture of Indian economy

The Asian Development Bank (ADB) expects the Indian economy to contract by 9% in 2020-21. ADB had projected a 4% contraction in June. On September 14, S&P projected a contraction of 9% for the economy, from its earlier forecast of a 5% contraction.
Most experts also warn that even the sequential recovery in the economy cannot be taken for granted. The Nomura India Business Resumption Index (NIBRI) reached its highest post-lockdown level in the week ending September 13. However, the Nomura report raises questions on its sustainability given the continuous rise in Covid-19 infections. In addition, rising inflation poses another challenge to economic recovery. India’s GDP contracted by 23.9% in the quarter ending June 2020.
The -23.9 per cent shrinkage in the April-June GDP is not a surprise as nearly half the period witnessed a national lockdown. It’s also not surprising that this loss is the world’s steepest for India’s lockdown was the most stringent and the accompanying fiscal policy response the weakest. But the quarter per cent slump did surprise most analysts who have since rushed to savagely cut India’s annual growth forecast; on average, these have doubled down into the -10 per cent range, a possibility this author anticipated two months ago.
Income and employment losses have devolved majorly upon the low-paid, informal, blue and white collared and younger earners according to disparate evidence and employment intensities. The Centre for Monitoring Indian Economy surveys assess that about 21 million salaried jobs have been lost between April-August; in August, urban unemployment was almost in double digits even as informal jobs returned. Services, which constitute 54 per cent of India’s economy, is likely to bear the brunt of unemployment as a respective 59.7 per cent and 63 per cent of urban male and female workers are engaged in ‘trade, hotel and restaurant’, transport, storage and communication’ and ‘other services’ (2018-19).
What’s the prospect for recovery? Many, including the chief economic adviser, predict a V-shaped recovery in 2021-22. Unless there is a focused intervention in the economy, both business and consumer sentiment will continue to deteriorate, eclipsing prospects of any credible recovery.

- Prabhakar Purandare

Other Editorials