Economics for Managers

Supervised By: Dr Sarbjit Singh

Project Report
on

National Income Post Pandemic

Submitted By:
Group – IX

Anamika Prakash EMBA23002

Bhavya Chauhan EMBA23008
Manisha Srivastava EMBA23013
SSV Tripura EMBA23023
Samrendra Kishore PHDWP23011
Tarini Goyal PHDWP23013
Sheikh Jalalludin Md PHDWP23014
 Contribution Table

ROLL No NAME CONTRIBUTION %

EMBA23002 Anamika Prakash 14.3%
EMBA23008 Bhavya Chauhan 14.3%
EMBA23013 Manisha Srivastava 14.3%
EMBA23023 S S V Tripura 14.3%
PHDWP23011 Samrendra Kishore 14.3%
PHDWP23013 Tarini Goyal 14.3%
PHDWP23014 Sheikh Jalaluddin Md. 14.3%

Abstract

As a preventive step against the COVID-19 pandemic in India, the Government imposed a
state-wide lockdown for 21 days on the evening of March 24, 2020, preventing mobility of
the whole 1.38 billion (138 crore) population of India. The lockdown which was imposed as a
short term measure had to be continued in phases over next two years, impacting the Indian
economy adversely. In view of the deficiencies and restricted admittance to present-day
work and items, private usage fell strongly because of forced lockdown in many states.
Families were seriously impacted during the pandemic. India being a net transporter, suffered
strongly as a result of trade limits during the pandemic. Freight and trade limitations were
reflected in the costs. India needed to import more than it did before the scourge in light of
the lower cross-country financial stream, which brought about an emotional drop in generally
speaking creation levels. This GDP loss has been the most acute, and it's possible that this
understates the financial devastation suffered by the poorest people. An analysis of the
changing national income and forecast of the future will help in better understanding of the
macroeconomic problem triggered by unprecedented circumstances.

Introduction

The objective of this report is to derive an estimate of GDP reduction, in comparison with
pre-lockdown times 2011-2020 March and post lock down times. Cases of COVID-19
pandemic were reported in India towards the end of January 2020. In mid-March, economic
activity was disrupted in various states, including some metropolitan areas and from March
25, a large-scale nationwide lockdown was imposed in the interest of the country. Evidence
from other countries indicated that a lockdown was needed to control the Pandemic. This
resulted in a significant drop in the GDP. Science and the media have a lot of speculation
about the magnitude of contraction of GDP.
This empirical study is worked on an estimate using the expenditure method of the “National
Income Accounting Framework”. A comparison of expenditure under normal circumstance to
that during the lockdown and post Covid has been examined. GDP reduction is estimated to
be between 58.08 percent and 66.78 percent, according to our calculations. However, this
projection should not be confused with the Indian economy's growth forecast. It is simply an
estimation of the decline and advance in the GDP during Covid and post Covid based on the
prediction and data. The Indian economy declined by 7.3 percent in the April-June quarter of
fiscal year 2020-21. According to official figures issued by the ministry of statistics and
programme implementation, this is the steepest drop since the government began recording
GDP statistics quarterly in 1996. After the lockdown was imposed in 2020, an estimated 10
million migrant workers returned to their home states. It is large in size, yet not out of the
ordinary when compared to other countries. “INSEE (2020) reported a 35% drop in French
GDP” in the first month of the lockdown in a similar analysis for France. For a research
published for McKinsey & Company, “Gupta et al (2020) anticipated a drop of 43 percent to
51 percent”, among other studies on India. According to CRISIL (2020), “41 percent of GDP
is at risk, with a reduced rate of growth of 1.8 percent for the fiscal year 2020-21”. Other
institutions predicted lower annual GDP growth rates, such as “-5.2 percent as per Nomura, -
0.4 percent as per Goldman Sachs, 0 percent by Moody's, 1.5 percent to 4% by the World
Bank, 2.1 percent by the Economic Intelligence Unit and 1.8 percent by the Asian
Development Bank”. S&P recently lowered the Indian economy's growth rate to -5%, while
the RBI raised it to 5%. Under these circumstances, the recovery is projected to be slow.
After-independence, India’s GDP has seen a downswing just four times before Pandemic – in
1958, 1966, 1973 and 1980 (5.2%). The loss in national income due to Covid is the most
devastating and much more than the overall reduction in the other economies (Figure 1).

Figure 1 Economic reduction in India and the World during Covid-19

Reduced labour supply adversely affected both “demand and supply in the products market
and increased transaction costs for both demand and supply” the main avenues via which the
pandemic's negative consequences operate. These effects take three months to a year or
longer to manifest. In its spring 2020 projection, “the European Commission (2020) predicted
a deep and uneven recession (across Europe), with a 7.7% drop in Euro area GDP and a
global deep of 3.5 percent”. It also anticipates a shaky recovery. For Chinese economy, the
CPB (2020) predicted a 1.2 percent to 7.7% drop compared to the previous year. Also the
Council of Economic Experts (2020) forecasted a “2.8 percent to 5.4 percent drop in German
GDP”, while Morgan Stanley predicted a 3% drop in US GDP. The World Trade
Organization (WTO) has divided the ways of estimating the decline in economic activity into
two groups, namely “calculation type studies”, such as those conducted by NSO and
observation type studies (2020), INSEE (2020) and the OECD (2020a, 202b), as well as
studies based on economic forecasting models, such as CPB (2020). Our method is similar to
“calculation type”, in which it calculates the decline in GDP due to sector-specific declines.
We used the demand side of national income accounting, i.e. the expenditure side.
GDP or Y = C + I + G + NX
Where,
C = Consumption: The term "consumption" indicates how much money a family spends on
various goods and services, non-durables (such as food and clothing), durables (such as
vehicles and refrigerators) and services of goods (such as haircut, education and medical
care). Due to the imposition of lockdown in the country personal consumption fell sharply it
contracted 3.9% in the year 2020 (post lockdown) as compared to 2.4% expansion in year
2019 (pre-lockdown).
I = Investment: Capital goods are purchased for the purpose of producing mostly consumer
items in the economy and are referred to as investment although, in reality, machines are also
used to make machines. It's worth noting right away that investment does not include stock
and bond purchases, which simply redistribute existing assets among different people.
Investment contracted by around 20 lakh crores in post lockdown times and came to around
3076722 in the last three quarters of 2020, whereas in 2019 it was around 50,12,256(approx).

G = Government purchases: Food, books, stationery, railway trains, and medications, as

well as the services of government workers, are examples of products and services acquired
by the central, state, and local government bodies. When a person works in a nationalised
bank, for example, the government pays him a wage in exchange for his services.
Government purchase increased by a significant margin in the Q2 of 2020 the time when
lockdown was imposed in the country.

NX = Net exports: The difference between exports and imports is known as net exports. It is
the gap between the value of products and services exported versus the worth of goods and
services imported. In the last 4 quarters before 2019 India imported goods of around Rs
490524cr and post lockdown in the last 3 quarters of 2020, India exported goods worth Rs
39726 cr. In those three quarters, for second and third quarters, India imported minimal
amount of products however, during the last quarter India exported its products as one of the
biggest exporter of PPE kits and COVID-19 related goods.
The method for calculating the change in GDP and data is presented in Part 2, the results and
comments are presented in Section 3, and the last section concludes.

Data and Research Methodology

For this topic, we have used secondary data -

“Secondary data is information that has previously been published in books, newspapers,
magazines, journals, and other online resources. These sites have a wealth of information
about research topic in business studies, nearly independent of the nature of the topic. As a
result, using a suitable set of criteria to pick secondary data for use in the study is critical in
terms of boosting the research validity and reliability”. We acquired data for this analysis
from a variety of secondary data sources, including scholarly publications, government
websites, and online portals. As a result, the numerous data sources are -
Pulapre Balakrishnan, “Financial stability and the RBI”, The Hindu, October 15, 2019.
Kaushik Basu, “India and the Mistrust Economy”, The New York Times, November 6, 2019.
“India Fiscal Deficit Breaches Target to Hit 4.6% in FY20”, BloombergQuint, May 29, 2020.
“Covid-19: Experts seek income support, cash transfer for those affected”, Business
Standard, June 3, 2020. Pib.gov.in and Estimate of National income published by NSO,
Ministry of Statistics & Programme implementation, Government of India.
https://www.mospi.gov.in/sites/default/files/press_release/PressNoteQ4_FY2022-
23_31may23.pdf

Methodologies used for Analysis

The major analysis methods utilized in the report for deducing results from the past data are
trend analysis and linear regression methods. The correlation between the national income
and the factors on which it depends has been devised through various plotting tools such as
line graphs, tables, bar graphs etc. We performed quantitative data analysis, in which we
applied critical and analytical thinking to translate raw numbers from multiple sources into
useful data. A quantitative technique is frequently related to obtaining data to support or
reject hypotheses that we have developed earlier in the research process.
Trend analysis is basically a technique used to predict the current or future value of a variable
based on the data of past movements of that variable in a stipulated time frame. It uses
historical data to forecast the long-term direction of the required variable. The factor of
seasonality on the national income is also included in our research, where we have adjusted
the change in the national income based on the quarter wise data which helps us to better
understand the variability of national income.

Empirical Results and Findings

Pandemic Phase

A nationwide lockdown was imposed on 25 th March 2020, due to which an entire economy
came to a standstill. People lost their jobs; unprecedented changes in the lifestyle, food
consumption trends, and public health were seen. We saw how consumers shifted their
purchasing and consumption trends from want based to need based. While economies
worldwide suffered a lot due the pandemic, India was among the countries to have seen a
huge contraction (Figure 1). In the post-independence period India had seen decline only four
times before 2020, with the largest drop in 1980 which was approximately 5.2%. Besides
economic meltdown pandemic also brought severe hardships on lives of the people.

As an immediate consequence of imposing lockdown in various states and union territories,

private consumption saw a major dip due to shortages and reduced access to industrial goods
and services. The decline in consumption was also attributed to increasing levels of
unemployment (figure 2), unstable income sources, hoarding and shortages because of lower
levels of production that caused inflation in general price levels. As a result of decline in
consumption, the spending in the economy reduced drastically to mimic a recession like
situation wherein low levels of currency was being circulated within the economy. Since the
government didn’t take any measures to stimulate the economy or encourage increased
spending, the situation persisted till the removal of lockdown post which consumption
gradually returned to previous levels. In Q1 of the financial year 2021-21, consumption
growth rate declined by 26.7%, compared to the same quarter in the preceding year. The
trend shows that long-term consumption growth stagnated in the last few years and fell by
2.7% in Q4 of 2019-20.
 Figure 2. Impact on unemployment rate January 2020 to May 2022

Due to inflation in prices and a recession like situation, the general income levels saw
decline. Consumers spent on essential commodities like food and medicines increased but
due to reduced levels of overall income, disposable income and savings saw a sharp decline.
As a direct consequence, investments (also referred to as Gross Fixed Capital Formation)
showed a sharp dip (figure 3). The major reason for decline in investment was identified to be
a sharp decline in household income and households retaining cash for emergencies. Apart
from this, fall in stock market (Nifty 50 and sensex saw a decline of 40%) and mutual funds
yielding negative returns also contributed to the decline in investments. Households involved
in businesses were heavily impacted during the pandemic, which directly resulted in their
decline in investment levels. Fewer investors preferred investing in mutual funds during the
pandemic and even fewer preferred stock markets. The pandemic caused the investment
growth to decline by 47.1% in Q1 of 2020-21. The overall trend suggests that investment has
stagnated at 5% in the last 7-8 years. The quarterly investment growth rate began declining
since Q1 of 2018-19 and dropped to –6.5% in Q4 of 2019-20.

Figure 3. Impact of Covid on various sectors

To provide pandemic relief, government increased its consumption gradually. The lags in
spending came from a careful consideration of the targeted fiscal deficit of 6.8% of GDP in
the fiscal year amid risks of decline in receipts from the privatisation programme aimed at
raising Rs. 1.75 lakh crore. The budgetary provisions however did include an expenditure of
Rs. 35.11 trillion in the 2020-21 fiscal years and a subsequent expenditure of Rs. 34.83 lakh
crore for the 2021-22 fiscal years. Government final consumption expenditure (GFCE) has
been increasing for the last 7-8 years. In Q1 of 2020-21 it was at 16.4%. However, despite
having a growing share in GDP, government expenditure has remained at 18.1% in Q1 of
2020-21. This was considered to be the upper limit for the positive contribution towards the
GDP. India being a net importer, suffered heavily due to trade barriers during the pandemic.
Due to freight and trade restrictions, it became extremely expensive to import which reflected
in domestic prices. Due to reduced economic activity nationwide causing a sharp decline in
general production levels, India was forced to import more than pre-pandemic period. A
direct consequence of this was the shift in balance of payments outwards. Considering that
most of India’s imports are in the intermediate and capital goods sector, imports started rising
sharply upon the opening up of economy post-lockdown. The increase in exports was much
lower in this period. Exports growth declined by 19.8% in Q1 of 2020-21 and was negative in
rest three quarters even before the imposition of pandemic.

Year and Private Govt Net Real GDP Investment

Quarter Consumption Consumption Exports value
2018-19(Q2) 1929745 408645 -115639 3442739 1116240
2018-19(Q3) 2709762 396443 -134712 3404720 1199826
2018-19(Q4) 2930140 329922 -120089 3492973 1244490
2019-20(Q1) 2938245 316937 -49405 3721482 1297293
2019-20(Q2) 2936906 392585 -170514 3566707 1316673
2019-20(Q3) 2966863 434570 -129409 3561529 1209537
2019-20(Q4) 3252753 359174 -95372 3607629 1239402
2020-21(Q1) 1548901 412664 6136 2724023 669321
2020-21(Q2) 1857460 310074 -28799 3346731 1075997
2020-21(Q3) 2188868 331300 -120133 3660581 1164824
2020-21(Q4) 2229267 424184 -167872 3955784 1345547
2021-22(Q1) 1822102 403808 15630 3311050 1077836
2021-22(Q2) 2121839 346501 -46285 3651659 1209609
2021-22(Q3) 2426098 350565 -91259 3850772 1179221
2021-22(Q4) 2333501 474406 -65579 4112360 1412108
2022-23(Q1) 2182357 411243 -86460 3747908 1297588
2022-23(Q2) 2298123 332450 -146623 3880988 1325580
2022-23(Q3) 2478700 348329 -97506 4018584 1273453
2022-23(Q4) 2399515 485284 -6264 4361515 1538071

Table 1. Components of GDP

 Figure 4. Components of GDP Q2 FY 2018-19 to Q4 FY 2022-23

Among all components of aggregate demand, consumption and investment contribution were
identified to be the largest. In Q1 of 2019-20, these two accounted for 88.4% in overall share
of GDP and up to 76.6% in Q1 of 2020-21. It is clear that Indian economy is primarily driven
by consumption, followed by investment. As a consequence, the sharp decline in these two
components caused the overall GDP to decline rapidly during the pandemic. Government
consumption expenditure rose up as a fiscal response to the economic slowdown but couldn’t
exceed the targeted fiscal deficit and faced an upper ceiling beyond which it ceased to uplift
the GDP. Net exports will not be able to revive the economy in the short run if all other
factors remain unchanged. High export growth, however, could impact the GDP positively
but is hard to achieve in the long run due to India being a net importer in a significant portion
of preceding periods. Overall, the GDP saw a sharp dip by 23.9% in the quarter most affected
by the first wave of pandemic (figure 2). Despite India announcing a fiscal stimulus package
of INR 20 lakh crore, the economic slowdown could not be reversed at the desired pace and
could only gradually return to previous levels.

Figure 5. Estimated quarterly impact on GDP FY 2020 to FY 2022

Post-Pandemic Phase

In the period April to June 2020, India’s GDP dropped by a massive 24%. According to the
“national income estimates published in May 2021, the economy contracted by a further
7.4% from July to September 2020 and the subsequent recovery in the following six months
was weak, meaning that the overall rate of contraction in India was (in real terms) 7.3% for
the whole 2020-21 financial year”. In the FY 2022-2023, India's GDP increased by 9.5
percent, showcasing a strong recovery and outperforming major economies. This bounce
back can be credited to a permutation of factors, like government stimulus, resumption in
consumer demand and greater than before industrial output. However, the recovery is
primarily driven by the growth in demand for goods and services produced in the country.
Though inflation has emerged as a major challenge, still it is projected that India will be the
fastest-growing economy in Asia at 6.5-7.0 per cent in FY24.

Figure 6. Real GDP FY 2020 to FY2023

Figure 7. K-shaped recovery Q1 FY 2021- 22

The national economy saw a K-shaped recovery (figure 7). Stimulus packages introduced by
the Government in FY 20 and 21, Atmanirbhar Bharat programme (economy, infrastructure,
technology-driven systems, demography, demand, Import substitution and promoting export-
oriented industrialization), increase in household savings, revival in consumer Sentiment,
revival of Imports & Exports, improved GST collection which was Rs 1.15 lakh crore in
December 2020, all these factors conjoined to help in economic recovery. The same is
evident in improving GDP data. As an indicator of investor sentiment the BSE index jumped
91 per cent from a record low of 25,881 in over 10 months. In FY 2022-23, supported by the
extended Emergency Credit Linked Guarantee Scheme (ECLGS) of the Union government
industrial output improved. Recovery of MSMEs is evident in the amounts of Goods and
Services Tax (GST) paid. India’s economic growth in FY23 (figure 8) has been principally
led by private consumption and capital formation. If we are able to control the inflation in
FY24 and credit cost does not rise, then credit growth is likely to rise in FY24.
 Figure 8. GDP growth in FY 2022-23

Conclusion

We witnessed consumer behaviour transition from need to necessity. Because of the fall in
use, monetary spending diminished altogether, imitating a slump-like circumstance in which
low degrees of money were being circulated inside the economy. In the light of extension in
costs and a slump-like situation, the general compensation levels came down. Purchasers
spent on key things like food and drugs anyway in view of reduced levels of general
compensation, additional money, and speculation support saw a sharp rot. To give pandemic
mitigation, the public authority extended its usage constantly. The GDP declined quickly
during the pandemic. India’s economy seems to be in better shape than anticipated post the
pandemic. Government initiatives including fiscal and social measures have been effective to
boost the economy in mitigating the slowdown led a K-shaped recovery. The covid-19
pandemic has customarily altered the economic sentiments and working in India which is
likely to have some long-standing effects.

References:-
https://www.economy.com/india/net-exports
https://dea.gov.in/monthly-economic-report-table
https://www.orfonline.org/research/post-pandemic-economic-recovery-seven-priorities-
india/?amp
https://pib.gov.in/PressReleasePage.aspx?PRID=1723153
https://statisticstimes.com/economy/country/india-quarterly-gdp-growth.php
https://statisticstimes.com/economy/country/india-gdp-sectorwise.php
https://www.mospi.gov.in/sites/default/files/press_release/PressNoteQ4_FY2022-
23_31may23.pdf