ECONOMIC CRISIS IN INDIA: GDP FALLS BY 23.

9%

As per the recent released data for the first quarter (April to June) of the financial year 2020-
21 by the National Statistical Office (NSO), GDP slipped by a sharp 23.9%. NSO comes
under the Ministry of Statistics and Programme Implementation (MoSPI). The data is vital as
it provides the first benchmark on the state of India’s economy after the pandemic. The June
quarter GDP data is the worst contraction in the history of the Indian economy since
Independence. According to the economists surveyed by Bloomberg, India’s GDP is
estimated to have declined 18 per cent in the quarter ended June. India’s decline is the worst
among the world’s top economies. The United States economy slipped by 9.5% in the same
quarter and Japan’s economy by 7.6%.

Data released by the Indian government shows the extent of the collapse in GDP in the three
months ending in June, with the construction, manufacturing and transport industries among
the hardest hit. The figures reflect the onset of India’s deepest recession since 1996, when the
country began publishing its GDP numbers. The picture is further complicated by the fact
that so many people are informally employed, working in jobs that are not covered by
contracts and often fall beyond government reach. As per the economists, official numbers
are bound to underestimate that part of the economy and that the full damage could even
greater. An economist at ICRA, Aditi Nayar, said that “The strict lockdown led to a sharp
contraction in activity in Q1 with job or income losses being faced by people.” Millions of
workers who over the years had been drawn to the urban centres for jobs started returning
home to rural areas. Also India is also failed to control the spread of coronavirus. India is
now recording the world’s highest number of daily new COVID-19 positive cases. Just a few
years ago, India, with a population of 1.3 billion people, was one of the world’s fastest
growing large economies, clocking growth rate of 8% or more. But even before the pandemic
of COVID-19, the economy had begun to slow down. The newly released data showed that
consumer spending, private investment and exports has all suffered tremendously. The sector
including trade, hotel and transport dipped 47%. India’s once mighty manufacturing industry
shrank 39%. As per the economists the surging coronavirus cases in the country might push
recovery further away and that the central bank would increasingly come under pressure for
additional stimulus payments and rate cuts.

The IMF’s World Economic Outlook in the month of June had put the expected rate of
decrease in India’s GDP for the financial year 2020-21 at 4.5%, while other estimates before
this released by the NSO had put it in the 5% to 6% range. COVID-19 crisis is not unique in
India. It is global shock that is playing havoc across the world. Therefore, to have a sense of
how bad the economic impact has been, we should also compare India with other countries.
India has a large informal sector that contributes about half of its GDP. The measurement of
informal sector output is largely a matter of guesswork and therefore we don’t have good
estimates of how badly this sector has been hit. A sharp rise in unemployment would be
another indicator of the economic impact of the crisis. As per the CMIE estimates,
unemployment rate peaked to above 23% in the months of April and May which is nearly
three times what it was in the months of January and February. Another indicator of
economic activity especially for urban and semi-urban areas is electricity consumption. Over
the three months that constitute the first quarter, namely, April, May and June, the average
daily drop in electricity consumption level was 24%, 13.5% and 8.2% respectively. So, the
negative economic impact of the crisis has been large for India whether one looks at its own
past record or the contemporary experience of other countries. The drop in GDP is in line
with other macroeconomic indicators, but very likely under-estimates the impact on the
informal economy where a vast majority of the population is employed which implies that the
crisis has hit the poor harder.

Rajeev Ranjan @ Samacharline