There is no doubt that India’s gross domestic product or GDP has taken a hit as a result of the global economic slowdown coupled with the COVID-19 pandemic resulting in lockdowns and restriction in movement of goods and services interstate and cross border. As per the data indicated by the national statistical office, India’s quarterly GDP has declined by 23.9%. The United Nations Conference on Trade and Development (UNCTAD) has forecasted that India’s economy could contract 5.9 per cent in 2020. However, even the UNCTD has attributed the reasons for the decline owing to strict lockdowns and austerity measures. The government’s chief economic adviser Dr Krishnamurthy Subramanian has attributed the deceleration to “exogenous factors”, referring to the Covid-19 pandemic and the lockdowns it necessitated, while the Finance minister Nirmala Sitharaman has blamed the dwindling GDP decline “an act of god”.
Not just India but other countries have faced a sharp decline in GDP and global downfall in the economy and productivity. The world economic forum pointed out that more than five years of economic growth has been wiped out in the US. The US Department of Commerce, Bureau of Economic analysis reveals that the GDP has decreased at an annual rate of 31.7 per cent in the second quarter of 2020 and it also that “the decrease in GDP reflected decreases in Personal Consumption Expenditures exports, nonresidential fixed investment, private inventory investment, residential fixed investment, and state and local government spending that were partly offset by an increase in federal government spending.”
The world’s third-largest economy Japan with GDP worth 5081.77 billion US dollars in 2019 witnessed the worst contraction since World War II with a decline in GDP to 27.8%. Statistics of Canada also revealed similar results for the quarter with GDP contracted at the rate of 38.7 per cent as the worst posting for the economy dating back to when the comparable data was first recorded in 1961. In Germany, the GDP shrank by 9.7 per cent but has been less severe owing to the anticipated better recovery with the ongoing demand and decline in the Covid-19 spread. The United Kingdom shrank by 20.4 per cent in the second quarter of 2020, the most since comparable records began in 1955. In France, the economy shrank at a record 13.8% on quarter in the second quarter of 2020.
Rising cases of COVID-19 also declined the Spain economy with a GDP shrank of 18.5 per cent in the second quarter. Second-quarter GDP in Russia dropped by 8.5 per cent according to preliminary data with a significant drop in the extractive industry and manufacturing. National Statistics bureau ISTAT stated that “Italy’s economy shrank a downwardly revised 12.8% in the second quarter from the previous three months, the steepest recorded drop in the gross domestic product as the coronavirus crisis lacerated the country.” According to figures released by the Australian Bureau of Statistics (ABS) fell 7.0 per cent in the June quarter, the largest quarterly fall on record. The economic affairs ministry (SECO) released that Switzerland has plunged into a recession with a “historic” 8.2-per cent slump in economic activity in the second quarter.
The country which was praised by the entire world for the utmost precision and able handling of the pandemic, namely New Zealand which has entered a recession and has posted a 12.2% second-quarter fall in its GDP. Paul Pascoe at Stats NZ said the GDP fall was “by far the largest on record in New Zealand” and admittedly New Zealand did not have a recession since 1987.
In the group of developing economies, a Reuters poll showed “Brazil’s economy likely cratered 9.4% under the impact of the coronavirus outbreak in the country during the second quarter, the worst three-month period ever”. “Malaysia’s GDP contracted by 17.1% in the second quarter of 2020 (2Q20) mainly due to the movement control order (MCO) enforced during the quarter to stem the spread of Covid-19”, Bank Negara Malaysia (BNM).
In Indonesia, the GDP declined for the first time since the aftermath of the Asian Financial Crisis more than two decades ago. The statistics Indonesia (BPS) determined the contraction of the Indonesian economy at 5.32 per cent year-on-year, the weakest GDP result for Indonesia since Q1-1999. Mexico faced a high GDP shrunk with a fall of 18.7 per cent in the second quarter of 2020 as stated by the National Institute of Statistics and Geography (Inegi), Mexico. The INDEC national statistics bureau stated that Argentina’s GDP slumped 19.1% in the second quarter of 2020. President Alberto Fernández “has significantly increased spending to stimulate the economy, despite having no access to credit markets following the nation’s ninth default. Argentina emerged from default earlier in September.”
Since the pandemic is still very pertinent the quantum of spending has also reduced until a vaccine or a potential cure could be found for the resolution of the pandemic as investment continues to be a higher risk than ever before. Dr Pronab Sen noted economist and former Chairman of the National Statistical Commission “There is a growing COVID induced fear psychosis which is impacting both demand and investment. Households have been dis-saving during the lockdown as the economy contracted. But fears of future income losses will force postponement of most big-ticket spending and investment,”. There are several businesses which are still holding back from manufacturing, selling, distribution, etc due to the COVID psychosis. At the same time, the same psychosis has held back people from going to work, thereby causing labour shortages.
There are several news articles and people claiming that India has been the worst-performing GDP. Not only is that untrue, but comparisons cannot be done on a country to country basis. A developed country’s economy cannot be compared to developing economies. Moreover, a country which did not have themselves under complete lockdown cannot be compared to the ones which did. The United States of America did not impose a nationwide lockdown but still felt the shackles of the pandemic sharp as evident from the stats above.
In its global macro outlook amid pandemic, Moody’s says it expects China to be the only G20 country to post growth in 2020 (1% growth in 2020, 7.1% growth in 2021). Moody’s sees India’s GDP contracting 3.1% in 2020, but growing 6.9% in 2021. It becomes quite evident that India is not the only country facing the heat of the pandemic and is neither the worst-performing GDP under the pandemic considering the surge in the economy.
It becomes increasingly apparent that India’s economy substantially suffered due to lockdowns and series movement restrictions to protect its citizens. Pakistan’s Prime Minister Imran Khan was quoted saying that Pakistan could not afford a lockdown and would be devastating to its economy. Many countries steered away from a complete lockdown for the same reason.
India at the very outset of the pandemic decided to put citizens before the economy and as predicted had a quarterly decline.
The surge in the recovery of the GDP post lockdown
The Nomura India Business Resumption Index (NIBRI) stood at 82.3 for the week ending September 20 from 81.2 a week earlier, recording the second consecutive week of a fresh post-lockdown high. This was credited to the rise in the mobility of goods and services facilitated by the lifting of the lockdown which can be directly cross-referenced with the reasons for the decline of the GDP in the first place.
These are clear indicators that mobility across the country has surged. The credit rating agency ICRA quoted that “toll collections reached 87% of the pre-COVID level in the second fortnight of July, adding that 90% of commercial vehicles are now back on the road”. This, in turn, has seen a 22% growth in loading during the first 25 days of August, earning Rs 7 crore, up 22% compared with the same period last year as per the Railway division.
The GST collections witnessed a significant drop of 12% as compared to the last year in July 2020. However, with the unlock and ease of restrictions the GST collections have been encouraging with 2% growth in the previous month figures. The Finance Ministry stated that the Goods and service tax (GST) collections for August stood at Rs 86,449 crore with a significant recovery by the increase in domestic transactions revenue at 92% and a decline in imports at 77% during the same month.
Apart from these sectors since the mobility increases coupled with the Atmanirbhar Bharat Abhiyan – COVID relief package hopes to uplift the growth even more. These measures have the possibility to amplify investment and spending.
The Chief Economic Advisor is hopeful of a V-shaped recovery for India ahead. CEA Krishnamurthy Subramanian said, “India is experiencing a V-shaped recovery after the unlocks have been announced. Core sector output is showing a V-shaped recovery”.
Amid the lockdown phase, the e-commerce business has significantly boomed the manufacturing activities and services with more and more people preferring online retail purchases on account of fear of the pandemic. According to IBEF “the Indian E-commerce market is expected to grow to US$ 200 billion by 2026 from US$ 38.5 billion as of 2017.” The MSMEs witnessed a major disruption in the business activities facing a major liquidity crunch. MSMEs significantly contribute to the economy, data from 2019 shows that the sector contributed 29% to overall GDP. Consistent efforts of the Government for the upliftment of the MSMEs such as re-designing the categories, TDS relief for MSMEs, encouraging transactions through the e-commerce platforms, Non-performing assets relief, credit and finance schemes etc have been a major relief for small businesses and overall helped in employment generation and exports.
The industries namely, Construction, manufacturing, trade, hotels, transport, communication & services which account for 45% of the economy were responsible for this sharp contraction in Q1, 2020-21. Except for agriculture, almost all sectors have shown a contraction in Q1 of 2020-21. Farm sector which is expected to be a key growth driver ahead saw a growth of 3.4% in Q1, 2020-21 vs 5.9% in Q4, 2019-20.
On the growth in the farm sector, CEA Krishnamurthy Subramanian said, ‘Agriculture sector has grown 3.4% despite lockdown is reflective of several reform measures announced by the govt’. Governments measures are clearly in place in some sectors and are evidently working.
Since the pandemic and lockdown encouraged ‘work from home’ and ‘social distancing’ the Broadcasting and OTT (over-the-top) companies have seen a jump in growth and new viewership/ subscribers. According to news reports, overall traffic has jumped by 10% and streaming platforms have witnessed a 20% spike in viewership.
There is no denying that the Indian GDP has shrunk and quarterly growth has been severely affected, but the prime reasons of the same can be attributed to the overall economic slowdown globally coupled with the strict lockdown imposed by the Government of India to curb the spread of the virus which restricted the mobility of the goods and services. Moreover, the same pattern can be seen all over the world for the correlation between lockdown and business being hampered isn’t difficult to infer. The government’s measures to stimulate the economy have to be extended to all sectors effectively to see a marginal growth back up again. Regardless, India is still the fastest-growing trillion-dollar economy in the world and the fifth-largest overall GDP and it would take more than a pandemic to cause significant economic devastations. India still maintains its dominance over the world economy & trade and shall see rapid growth and surge once the pandemic subsides.