23.9% was the number projected on the screens of our television, the number that gave a blow to many investors, analysts and assumingly the government itself. It was the number by which the Indian economy contracted in its first-quarter during April-June. With the prediction bar set lower than 20%, the news of the drop in GDP by 23.9% was astonishing, we will look into the possible recovery of the Indian economy after slipping into recession
This has been the sharpest fall since 1996 when the GDP figures were first published. Though the main contributor was the decision of lockdown due to pandemic, many even believe that India did start to record a slip in pre-covid era itself.
While many fear of the length of time for recovery for the Indian economy after the recession, let’s have a look at how bad was the situation.
Let’s talk numbers
Almost all the sectors of economy logged a contraction with the construction sector topping the list. It filled a fall of 50% followed by a 47% drop in trade, hotels and transport and communication.
Manufacturing sector occupying the third rank shrank by 39%. The figures were dismal and grave but agriculture sector managed to be the break in the clouds as it registered 3.4% growth in the quarter.
Shifting to the expenditure side, private final consumption fell 26.7% and exports nearly 20%, How is recovery of the Indian economy possible after the recession
Gross fixed capital formation lowered by 47% while government final consumption expenditure bulges 16.4%.
Going global, except for China that recorded a growth in GDP figures of 3.2%, all other major economies registered a fall with India’s numbers transcended by the U.S whose economy saw a drop of 32.9%.
Why did India’s GDP contracted?
The GDP is driven by four major factors- household consumption, business spendings, government consumption and net exports.
Household consumption in simple terms is the demand for goods and services by consumers or the general public. It accounts for maximum share in GDP and this year has fallen by 27%.
Next significant contributor is business spending or simply investment which means demand provoked by the private sector. These are also referred to as a private investment in daily lives. This particular engine had a hooping fall of 47% alone which is massive and sombre.
Government spending is expenditure on part of the government on public goods and services. Obvious in the given scenario, the government is ought to spend more at times like these for the recovery of the Indian economy after the recession. This resulted in an increase in government spending by 16%.
The last of these is net exports. Not as a striking contributor as other factors, but still crucial and material as it paints our international landscape and recorded a positive figure. This implies our exports have been more than our imports which seems invigorating and promising but also points to falling economic activity.
How was India’s recovery projected?
Chief Economic Adviser KV Subramanian earlier in an interview with CNBC-TV18 asserted that India will observe a V-shaped recovery.
What is a V-shape recovery?
The graph is a means to measure, analyze and predict the economic performance of a country. They tell how an economy went off rail can revive and bounce back by gaining the same lost momentum.
Alphabetic recoveries are the manifestation of the many options an economy has to set itself in motion again after a fall. There can be U-shape, V-shape, K-shape, L-shape and many more.
When we talk of V-shape recovery we generally mean that fall in the economy is steep but it shall revive back without a lump or break or deviation to its original form as meteorically as it fell.
How has recovery trajectory of the Indian economy been so far?
Financial Minister Nirmala Sitharaman in October told that “revival is there which is going to be steady and sustainable revival”. During the festive season, the rise in consumer demand was observed.
She asserted “demand for durable goods, agriculture equipment, tractors, vehicles are all going up. Festival season has commenced in India, as a result of which I expect demand go up and be sustainable also”.
The Federation of Automobile Dealers Association in October reported an escalation in overall vehicle registration across the country.
Pranjul Bhandari, chief India economist at HSBC Holdings Plc wrote: “Monthly sales tax revenues have crossed the 1 trillion rupee mark, manufacturing indicators have rebounded, and even sluggish capital-intensive industries have seen something of an uptick.”
In the bygone festive season, a considerable demand boost was seen marking a positive sentiment in the market. August 2020 saw a rise of 8% credit card transaction as more people shopped in festive sales.
Conclusion of recovery for the Indian economy after the recession
Though the picture seems optimistic enough it is still a long road to reload our original trajectory.
On a cumulative basis, the financial year is expected to see a drop of 9.5% in GDP according to RBI, breaking the benchmark of 5.2% fall in 1979-80. IMF has given the numbers to be 10.3% and World Bank 9.6%.
The government continues to release stimulus packages to bring our economy back on track. A good performance is expected in forthcoming quarters and India will probably resume it in old form from next year.