Pandemic and its effect on Indian economy

The economic impact of the 2020 coronavirus pandemic in India has been largely disruptive. India's growth in the fourth quarter of the fiscal year 2020 went down to 3.1% according to the Ministry of Statistics. The Chief Economic Adviser to the Government of India said that this drop is mainly due to the coronavirus pandemic effect on the Indian economy. Notably, India had also been witnessing a pre-pandemic slowdown, and according to the World Bank, the current pandemic has "magnified pre-existing risks to India's economic outlook".
The International Monetary Fund (IMF) released its World Economic Outlook (WEO) report on Tuesday. The previous WEO was released in April this year when the extent of the COVID-19 pandemic and its economic implications were still being evaluated. The report gives the economic forecast on a host of indicators up to 2025. While these numbers are subject to revision even in the short-term horizon, it is worth comparing India’s post-pandemic economic trajectory with that of other South Asian countries -- Afghanistan, Bangladesh, Bhutan, and Pakistan -- and with China, the only emerging market economy that is bigger than India. For the Indian economy, private consumption and investment are the two biggest engines for growth. During the first quarter of 2020, private consumption ? accounting for 59% of India’s GDP ? declined by 27%, while investments by private businesses fell by 47%. India’s net exports turned positive due to sharp compression in imports. During the quarter, government spending increased by 16%, but it was not adequate to compensate for the decline suffered by other engines of growth. Except for agriculture, all the major sectors of the economy were badly hit. Significantly, labour-intensive sectors such as construction, real estate, retail trade, transport and manufacturing contracted sharply during this quarter.
Interestingly, The Chinese economy has expanded by 4.9 per cent in the third quarter of this year at a juncture when recovery for a large number of countries seems like a distant dream. Parts of Europe, in fact, are considering the re-imposition of lockdowns with France already implementing a night curfew in Paris. In the debate on lockdowns for the sake of public health versus economic growth, it is critical that countries aim at stamping out the virus first. It is indeed a Catch-22 and only a visible end to the scourge will resolve the impasse. Allowing activity to resume with a few restrictions will bring back growth as we are seeing in countries such as China and Vietnam. The Vietnamese government implemented a low-cost model of tracing and isolating infected cases early in February, which proved effective in containing the spread of the infection. With just 59 active cases and mortality rate among the lowest in the world, the Vietnamese economy has bounced back fairly quickly. Growth for the July-September quarter was 2.6 per cent, fuelled largely by surging exports. China, on the other hand, remains an exception among the large economies. Not only is it growing, but has nearly returned to pre-Covid level. The malls are bustling with activity, tourist sites are mobbed during holidays, and vehicular movement is bumper to bumper during rush hours. While India’s per capita GDP (in current dollars) will fall below Bangladesh’s in 2020-21, it will overtake it marginally once again in 2021-22. India’s per capita GDP is significantly less than that of Bhutan and Sri Lanka in the South Asia region. With a dip in India’s per capita GDP trajectory, Bangladesh will enjoy almost similar per capita GDP levels as India’s up to 2025.
 

- Prabhakar Purandare

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