Indian Economy and Growth Predictions for 2021 | UPSC
A slump and green shoots of recovery
WHY IN NEWS:
How is the Indian economy faring and what are the predictions on growth for 2021?
SYLLABUS COVERED: GS 3: Economy : GDP
INDIAN ECONOMY AND GROWTH PREDICTIONS FOR 2021
- The year 2020 upended India’s economy as much as it disrupted the rest of the world, along with all aspects of normal life, thanks to the novel coronavirus.
- India’s economy had already been hurtling downhill before the pandemic hit, and a snap national lockdown brought economic activities to a halt.
- But as the year draws to a close, there is a glimmer of hope that the economy may see some recovery in 2021.
WHY WAS INDIA HIT HARD?
- By the beginning of 2020, India had already gotten off the 8% growth track for several quarters.
- 8.18% growth in GDP was recorded between January and March of 2018.
- India decelerated steadily till it was trundling along at half the speed by the end of 2019, growing at just 4.08% this time last year.
- Just before the pandemic struck, the state had already made multiple attempts to try and revive the economy.
- Post March, like in all other aspects of life, the pandemic managed to moderate expectations about the economy as well.
- From condemning the slowdown in the economy a year ago, after two quarters of negative growth, even a zero-to-slow growth scenario seemed better.
WHAT HAPPENED IN THE QUARTER BETWEEN JANUARY AND MARCH?
- India’s growth slowed to 3.09% between January and March this year, its lowest quarterly growth rate since 2012.
- This meant the country’s growth for financial year 2019-20 was an insipid 4.2%.
- The national lockdown announced at four hours’ notice and implemented in the last week of March, the economy was not getting any better than before.
- COVID-19 and the lockdown accelerated its collapse and unleashed widespread distress for households and wage-earners as almost all movement and economic activity was stopped.
HOW WERE THE STATES AFFECTED?
- While officials used the Epidemic Diseases Act of 1897, the rules of the lockdown were tweaked, altered and modified multiple times by the Ministry of Home Affairs.
- These differences also made inter-State movement tricky for goods as well as the millions of migrant workers who were stuck in their respective urban bases.
WHO BENEFITED FROM THE STIMULUS PACKAGE?
- The state gradually realised that pharma firms cannot make medicines without access to raw material and in the absence of public transport.
- E-passes were launched for employees to reach their workplaces and for transport of goods across the country.
- In the middle of May, the government unveiled a ₹20 lakh-crore stimulus and support package for the economy, branding it Atmanirbhar Bharat Abhiyan.
- In fact, some of the reforms it promised, like a new strategic disinvestment policy for public sector enterprises, are still awaited.
WHY DID THE APRIL-JUNE QUARTER SEE A SHARP FALL?
- The economy contracted nearly 24% in the April-June quarter — the sharpest fall since quarterly growth began to be recorded in 1996.
- The only sector to deliver positive growth in the period was agriculture.
- But manufacturing output falling nearly 40%, services 20% and construction 50% from a year ago had a deep impact as these sectors generate the maximum employment.
- The rest of the world had also gone into the lockdown mode, but the damage to the economy in India was the sharpest among major economies.
- And despite this, the virus was far from contained and inflation crossed the 6% mark led by rising food prices.
HOW DID UNLOCKING THE ECONOMY HELP?
- By the end of the July-September quarter, the Home Ministry had even permitted the resumption of public transit systems, including metros.
- As subsequent data suggest, official COVID-19 cases in the country also peaked around September.
- India managed to record just a 7.5% contraction in the July-September quarter.
- However, the rough patch was far from over for services such as retail trade and hotels and sectors such as mining and construction.
WHAT IS THE RBI’S VIEW ON GROWTH PROSPECTS?
- With the economy in a ‘technical’ recession after two successive quarters of contraction, the government unveiled a fresh round of support measures over October and November.
- Indeed, several high-frequency indicators clocked remarkable improvements over October and November.
- But their coincidence with India’s festive season, make it difficult to assess if this recovery is real and sustainable.
- The RBI believes that growth in the first quarter of 2021 will be even healthier as COVID-19 cases continue to dip.
- The six months between April and September 2021 could register 14.2% growth, the central bank estimates.
- That optimism, and the hopes of an imminent vaccine option for Indians, should ideally help the economy leave 2020 and its worst manifestations behind.
SOURCES: THE HINDU | Indian Economy and Growth Predictions for 2021 | UPSC