People awaiting their turn to get the jab at a COVID-19 vaccination centre in Delhi
The government’s official statisticians confirmed on May 31 what was more or less already known. India’s gross domestic product (GDP) in real terms (inflation-adjusted) contracted 7.3 per cent during 2020-21.
Among the many descriptors that analysts have been deploying to buttress Covid-19’s impact on the world, calling it a “write-off” year perhaps will be the most appropriate from an economic standpoint.
What happens when factories remain shuttered down for months on end? What happens when people cut down on spending to account for falling or flat incomes in wake of prolonged uncertainty? What happens when restaurants remain closed for long periods of time? What happens when airlines remain grounded for several months? What happens when shops shut abruptly for long periods? What happens export orders hurriedly get cancelled or dry out?
The answer: The economy will shrink. This clearly has shown up in the national income estimates that the National Statistical Office (NSO) released on May 31.
The Big Numbers
A few pieces of statistics, however, stand out.
Real GDP grew 1.6 per cent in the fourth quarter (January-March) 2020-21 over the same period last year. A comparison of contexts during the fourth quarters of 2020-21 and 2019-20 explains this growth.
In 2019-20, Covid-19 had begun to spread across the world. India recorded its first Covid-19 case on January 30, 2020. The world, and indeed the Indian economy, was staring an uncertain future.
The infection graph was rising, steeply. With no medicine, let alone vaccine in sight, economic activity started collapsing, precipitated by a falling demand for goods and services.
A year later, in 2021, the world, and India, was rebounding rapidly from its deepest recession in decades, amid a discernible wane in the wave of infections.
As hope and optimism quickly replaced despair of the previous months by the turn of the new year, households loosened purse strings. Consumer spending, the Indian economy’s strongest edifice, led the turnaround, pulling GDP growth from two successive quarters of contraction, to two successive quarters of positive growth.
The bounceback resembled the classic textbook V-shaped recovery, aided by a smart recovery in many sectors. Gross value added (GVA), which is GDP minus taxes and is a more realistic proxy to measure economic activity, in the manufacturing sector, which accounts for about 75 per cent of industrial output, grew by a robust 6.9 per cent in January-March this year compared to the same period in the previous year.
This probably mirrors the expansion in factory output that companies brought about to match growing consumer demand.
The Construction Play
The biggest turnaround has taken place in the construction sector, growing by 14.5 per cent during the quarter, compared to the same period in the previous year.
This corroborates the pace of highway construction that is closing in on an average of 40 km a day during the quarter. In fact, according to reports, the pace of national highway construction touched 76 km a day during the second week of January, which explains the nearly 15 per cent GVA growth in the construction sector during January-March this year.
Some of these numbers make for a pretty picture. All but two sectors—mining and hotels—have returned to the positive zone.
The hospitality sector, a high employment-intensive segment, has perhaps suffered the most debilitating consequences of the pandemic.
It was showing tentative signs of recovery during the early part of the fourth quarter as travel restrictions were progressively eased. The deadly second wave, however, will only worsen matters for the travel, hospitality and restaurant industry, making their return to a new normal a very prolonged one.
The more important aspect, however, is that will India’s economy be able to stage a smarter rebound from the second Covid-19 wave? That will depend mainly on one factor: the pace of vaccination. It is currently crawling at about two million jabs a day. The economy will regain confidence only when about half of the population have received both their shots. That looks still several months away.