New Delhi: Even though COVID-19 cases continue to rise in India, the government decided to ease restrictions on economic activities and businesses are now getting back on track as it unlocks.
With India unlocking, the worst seems to be over for the economy as some high-frequency indicators have recovered in June from the unprecedented time in April and May.
But is the economy recovering with the easing of lockdown or sinking? Has it plateaued with cases still rising and the imposition of lockdown in some states or has it become worst? What has happened to economic activity from July onwards? How would be the GDP growth like?
Experts believe that Indian economy had started recovering from the roughness in the month of April when the situation was even worst, but the rise in COVID-19 cases during the unlock phase, imposed restrictions in some states have interrupted this recovery in recent weeks.
However, a sense of optimism prevails, as efforts are on by the government and experts to mitigate ways to revive the Indian economy which is the fifth largest economy by nominal GDP and the third-largest by purchasing power parity.
Investment Information and Credit Rating Agency (ICRA) Principal economist Aditi Nayar said, "The Indian economy had started to recover from the troughs experienced in April 2020, when the lockdown was at its severest, and many sectors seemed to be adjusting to a new normal".
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However, the unabated rise in COVID-19 infections in the unlock phase and localised re-imposition of lockdowns in several states, have interrupted this recovery in recent weeks, with some indicators pointing to a plateauing, she adds.
She says, given the severity of the pandemic and the duration of the safety measures that need to be employed, we expect continued GDP contraction in Q2 FY2021. "We also anticipate unevenness, as different regions move in and out of lockdowns, and persisting labour supply mismatches affect supply chains and consumption patterns", Nayar told ETV Bharat.
"Additionally, the timeline for a firmer recovery out of the contractionary phase is now being pushed ahead to at least Q4 FY2021 from Q3 FY2021. This presumes that a vaccine will be widely available by then, which now appears necessary for discretionary consumption to recover in certain sectors such as travel, hospitality and recreation," she further points out.
We remain cautiously optimistic regarding the outlook for agricultural growth and rural consumption. Overall, we expect a contraction in Indian GDP of 9.5% in FY2021 in real terms, she underlines.
It is worth noting that with the lower number of coronavirus cases in rural India, demand picks up has been better than urban India and agriculture sector is emerging as a bright spot for boosting the overall economic slowdown.
Earlier this month, in a major boost to the economy, Prime Minister Narendra Modi launched the financing facility of 1 lakh crore under the Agriculture Infrastructure Fund and released the sixth instalment of funds of Rs 17,000 crore to 8.5 crore farmers under the PM-KISAN scheme.
Striking an optimistic note, economist Aakash Jindal said, "The Indian economy is a resilient economy as it has the power to bounce back. We have a great aspirational young middle class, though the unlocking has been slow, the fear of corona is still there, but demand has also started re-servicing. Earlier in the months of April and May, necessities were in demand but now the demand for luxuries and comfort has increased which impacts the economy".
"We can’t say that demand has revived fully but there is a signal of demand revival. By November, post-Diwali, during SAHA, India will witness a spike in economic growth as it would be marriage season and the demand will increase gradually. There would be substantial demand revival in India as Indian economy is run by growth and demand", he further adds.
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He points out that sale of automobiles, purchasing of apparels has increased as people have resumed work, with the push to digital mode, people are getting inclined towards purchasing gadgets, laptops and mobiles. These sectors are on the mode of revival mode, but sectors like aviation and tourism will take a longer time to fully revive once COVID-19 is delimited. But the positive journey has started and by the beginning of 2021, India will see a decent revival.
India’s economic revival is going to be much faster than bigger economies like the US, Germany or Japan because global GDP growth is estimated at (-5%). The bounce-back would be faster, he said.
"In my view, during January –March quarter 2021, India will have positive GDP growth because by that time, the business will boom post-Diwali and consumer demand would revive substantially", Jindal further added.
Highlighting on the indicators of economic revival, Jindal said, "India is being seen as a friendly country that would benefit the economy as the FDI will increase. Demand and consumption will bounce back fast; the IT sector is expected to get a major fillip by the last quarter of 2020-2021. I sincerely feel, by FY2020-2021 Indian economy will flourish".
Although the pandemic has cast its shadow across various economic activities with major disruptions in global production, supply chains and trade, the government is taking financial measures to rebuild the economy. The launching of 'transparent taxation honouring the honest platform' to reform direct taxes in India is one such example.
