The COVID-19 pandemic has been destructive not just in terms of claiming lives and infecting millions of people but also having a severe impact on the economy--with several businesses being hit across industries and sectors--due to lockdowns and restrictions.
This underlying factor has been indicative of the recent official estimates released on India’s economic performance. However, the contraction has been much better compared to the forecasts of the Reserve Bank of India (RBI) and the Ministry of Statistics and Programme Implementation (MOSPI), which had expected the Gross Domestic Product (GDP) for the full year to contract by 8 percent.
The lockdown during the first wave last year resulted in a 24.4 percent contraction in GDP in Q1, followed by a V-shaped recovery with a 7.4 percent decline in Q2, improving to 0.5 percent in Q3 and 1.6 percent in Q4, the latest release shows.
India’s GDP at constant (2011-12) prices in the year 2020-21 is now estimated at Rs 135.13 lakh crore, with a -7.3 percent growth as against the First Revised Estimate of GDP for the year 2019-20 of Rs 145.69 lakh crore at 4 percent.
The negative growth driven by the pandemic and its impact on the economy is reflective of the significant fall in household consumption, by 9.1 percent in FY21 as compared to a 5.5 percent rise in FY20. Meanwhile, the public expenditure by the government increased by 2.91 percent in FY21, much slower than the 7.88 percent rise seen in FY20.
The manufacturing sector has shown recovery in the fourth quarter of the financial year 2020-21 recording growth of 6.9 percent in the January-to-March period, compared to a contraction of 4.2 percent during the same period last year.
The economic impact of the second wave is unlikely to be very large, said India’s Chief Economic Adviser Krishnamurthy Subramanian, according to CNBC-TV18.
Despite the lockdown and its impact on the economy amid the second wave, the Indian stock market has performed fairly well compared to its peers, data show.
“Investment continued to lead the recovery, with consumption catching up,” Oxford Economics said in a release on May 31 analysing India’s economic progress. “The Q1 (March quarter) outcome is broadly in line with our expectations and we maintain our 2021 growth forecast at 9.1 percent. Sequentially, GDP is forecast to contract anew in Q2, albeit to a lesser degree than Q2 2020 amid less stringent lockdowns. But the recovery is likely to be more drawn out as restrictions extend into Q3,” it said.
In 2020, the global economy contracted by 3.3 percent owing to the impact of the deadly pandemic, IMF’s World Economic Outlook (WEO) released in April 2021 had noted. It projected the global economic growth at 6 percent in 2021, moderating to 4.4 percent in 2022.
It showed India's economy contracting by 8 percent in 2020, projecting a 12.5 percent growth in 2021. Considering the recent official estimates released, here’s how India now stands compared to its fellow economies.
“The better-then-expected growth print partly owes it to healthy corporate results in March quarter of FY21,” said Madhavi Arora, Lead Economist, Emkay Global Financial Services. “We admit the situation is still in a flux, and it is too nascent to gauge the true impact of the second wave on macro variables.”
Arora further added: “The impact is unlikely to be of the same magnitude as last year. Clearly, factors such as better adapted firms and policy response, stable financial conditions and robust global growth spillovers create growth buffers back home. However, credible vaccine drive remains key. The faster the vaccine traction, the faster would be the delinking between mobility and virus proliferation."
