With two consecutive quarters of negative growth, India experienced a recession for the first time in history in the first half of fiscal year 2020. In the first quarter of the fiscal year 2020-21, the gross domestic product (GDP) shrank by a historic 24.4 percent.
Is India experiencing a financial crisis?
The ongoing Covid-19 outbreak has taken a toll on India’s economy. The crisis has given way to recovery, and India was not the only one who had to deal with it.
One feature, however, distinguishes India from most emerging and advanced economies: the fact that the country was already in a deep economic recession prior to the pandemic. Much has been said about the slowdown and how it coincided with the implementation of demonetisation and the GST. We divided the last two decades and a few years into four-year chunks to see how incomes, consumption, investments, and tax collection have changed over time.
Is the Indian economy in a slump?
In the year 2020, the Indian economy had its first-ever technical recession, with gross domestic product (GDP) growth lasting negative for two consecutive quarters. In the first quarter of the previous fiscal year, GDP shrank by a record 24.4 percent.
Is India experiencing a recession?
The latest GDP statistics from the National Statistical Office for the fiscal year 2020-21 confirms what was expected. However, it appears that the country’s economy is already in a severe state of paralysis for the current fiscal year.
The cause for this is a lack of demand and consumption in rural areas, which support two-thirds of the country’s population. This is despite the fact that agriculture was the only industry to develop in 2020-21, with a gross value added of Rs. 20.40 lakh billion. This year’s monsoon is also expected to be above average.
India’s GDP shrank by Rs. 10.56 lakh crore, or 7.3 percent, between 2019-20 and 2020-21. The statistics on consumption, on the other hand, confirms what was widely expected: the economic slowdown resulted in a massive drop in private consumption. There would be no economy without it.
Private consumer expenditure, which accounts for 56% of the country’s GDP in 2020-21, has decreased from Rs 83,21,701 crore (57.1%) in 2019-20 to Rs 75,60,985 crore (56% of GDP) in 2020-21.
This equates to 70% of the overall GDP loss. This highlights the importance of private spending to economic growth.
Prior to this, the country had already seen its fourth consecutive year of economic downturn. Private consumption, both in rural and urban areas, was not growing at a rate fast enough to propel economic growth beyond 5%.
Private consumer expenditure per capita declined to Rs 55,783 in 2020-21, down from Rs 62,056 in 2019-20. Consumption expenditure is a proxy for income and is used to determine poverty levels in India. Using the following consumer expenditure as a rough estimate, the country’s monthly per capita income in the first year of the epidemic was Rs 4,649 per month. This was around 10% less than the previous year’s expenditure.
In the first year of the pandemic, it predicts a drop in overall economic activity. However, there is a caveat: even this expense was spent when a large proportion of people reported a loss of income or were working in irregular jobs. It implies that the majority of them have depleted their funds.
To summarize the accounting, people have either been left with no money or are simply returning to work, since the GDP numbers for the last quarter of the fiscal year showed a small but positive increase.
This reduction has had a disproportionate impact on India. Using World Bank data, the Pew Research Center estimates that the number of impoverished people in India (those earning $2 per day or less at purchasing power parity) has more than doubled in a year, from 60 million to 134 million, due to the pandemic-induced recession.
From here, India enters a situation that appears to be unimaginably precarious at the moment. The information arrived at a time when we thought the pandemic was virtually gone. In April, at the start of the new fiscal year, India was hit by a devastating second wave.
The second wave is also making its way into rural regions, causing widespread restrictions and lockdowns. Given India’s rural population of half a billion people, this could be the world’s first rural pandemic.
Between May 1 and 24, India registered over 7.8 million new cases, the highest monthly total ever. During this time, India was responsible for every second new case of COVID-19 in the world. And India was responsible for one out of every three deaths caused by this disease. For this time period in India, every second new case was reported from rural regions, and every second death was likewise from rural areas. It indicates that every third case in the world originated in India’s rural areas.
The rural areas were not as badly affected in the initial wave; rather, there was a widespread belief that COVID-19 was a disease of metropolitan areas. While we’ve seen overburdened health infrastructure crumble in cities and megacities, the prospect of what could happen in rural places is terrifying.
It appears that it will be far worse than previous year. India’s recovery from the pandemic is challenging and unpredictable due to the infection’s rural spread.
The second wave, which is more rural in nature, proves to be more disastrous for the country’s already destitute people. For the country’s approximately half-a-billion rural population, experts predict a vicious cycle. Rural Indians, who make up the majority of the informal sector and are poor by any standard, have been working irregular jobs for more than a year as the pandemic has ravaged the country.
The second wave, which likely include more rural cases, will exacerbate the economic crisis. As the number of instances rises, health-care costs may grow as well, depleting people’s income and savings. At the moment, all of the country’s states have put limitations on movement and activities. Unlike last year, the severity of lockdown varies from state to state and, within a state, from district to district.
Similarly, easing limits will be a state-by-state decision. People who have been without a regular source of income for more than a year are in a state of significant economic instability. This contributes to the perpetuation of the poverty cycle. All indications point to this.
Unlike previous year, job losses and unemployment are being recorded from rural areas, according to the Centre for Monitoring Indian Economy (CMIE). According to CMIE’s most recent data, the national unemployment rate is approaching its all-time high of June 2020, owing to COVID-19’s national lockdowns and restrictions. For the week of May 16, urban unemployment was 14.71 percent, while rural unemployment was 14.34 percent.
In its monthly bulletin for May, the Reserve Bank of India stated, “The epidemic has lowered the labor participation rate to 39.9% from an average of 42.7 percent in 2019-20.”
This degree of unemployment is referred to as the tipping point, especially in rural areas. “By 2017-18, the jobless rate had risen to its highest level in 45 years. According to economist Santosh Mehrotra, the COVID-19 pandemic has exacerbated the problem.
According to various estimations, the unorganized sector has been struck the hardest by the second wave. “Unlike the first wave, rural supply chains will be harmed,” Mehrotra continues, “since farmers and cultivators are also afflicted.”
The economic effects of a prolonged epidemic in rural areas would be severe because the labor is primarily informal and low-wage. India’s rural income, on the other hand, accounts for over 46% of the country’s total revenue.
Last year, the rural economy was buoyed by strong agricultural growth, while government investment on rural programs remained stable, albeit with reductions. However, it has remained unchanged this year. As millions of people returned to their communities, the agriculture industry reported a 3% gain in employment.
This year, it is unable to accommodate any further visitors. Furthermore, despite large harvests, the unfavorable trade term results in decreasing income. The much-inflated benefit of a third consecutive normal monsoon will be nullified as a result. When you have less money, you have less money to spend.
Similarly, rural areas account for 50% of manufacturing and construction in India, making them a big employment. These, too, are subject to lockdowns, and operations have slowed as a result of a general lack of demand. Rural communities will experience a drop in income as well.
Is India’s economy performing well?
With its robust democracy and strong relationships, India has emerged as the world’s fastest-growing major economy and is anticipated to be one of the top three economic powers in the next 10-15 years.
Is India gaining ground on China?
According to the United Nations Conference on Trade and Development (UNCTAD), India’s GDP would expand the fastest in 2022, at 6.7 percent, followed by China, which will grow faster in 2021.
When did India have a downturn?
According to the RBI’s economic data, the country has experienced four recessions, beginning in FY 1957-58 (when GDP contracted 1.2%), followed by 3.7 percent contraction in 1965-66, 0.3% decline in 1972-73, and 5.2 percent contraction in 1979-80.
Unlike the current fiscal year, when the main cause of recession is a global pandemic, prior recessions in India’s GDP were caused by two factors: a weak monsoon and an energy crisis. However, if India’s FY21 GDP drops in the September quarter, as economists predict, the contraction will be substantially larger.
In 1957-58, India experienced its first economic slowdown, with a negative GDP growth rate of 1.2 percent. The reason for this was a soaring import bill that increased by more than 50% between 1955 and 1957. Drought and hostilities with China and Pakistan triggered the recession in 1966.
Drought caused a 20% drop in food grain production in 1965-66. Foreign food help came to the rescue of India’s famished populace, with 70 lakh tonnes of food aid received in fiscal 1965, equal to 10% of local production.
Is India affected by the Great Depression?
The Great Depression had a significant impact on India’s battle for independence. Because colonial rulers refused to weaken the rupee, agriculture prices, India’s backbone, plummeted as a result of the global crisis. There was also a severe credit contraction.
“The decline of agricultural prices, which was aggravated by British financial policy in India,” writes German economic historian Dietmar Rothermund in a paper presented at the Indian History Congress in 1980, “made substantial sections of the peasantry rise in protest, and this protest was articulated by members of the National Congress.”
What is the present state of India’s economy?
As the economy recovers from its steep pandemic-induced downturn in 2020-21, Fitch forecasts real GDP growth of 8.4% in 2021-22 and 10.3% in the following fiscal year.
How many times has India had a recession?
NEW DELHI: Since independence, India has had five recessions or real GDP contractions: 1957-58 (-1.2 percent), 1965-66 (-2.6 percent), 1966-67 (-0.1 percent), 1972-73 (-0.6 percent), and 1979-80 (-0.6 percent) (-5.2 percent ). Because the agricultural sector accounts for the majority of GDP and has weak external balances, most recessions have previously been triggered by severe droughts or high international energy prices.
Why can’t the Indian government print more money?
Nirmala Sitharaman, the Finance Minister, said on Monday that the government has no intentions to create money to address the current economic crisis brought on by the coronavirus outbreak. We go over the regulations that govern money printing and why the government can or cannot do it at will.
Nashik’s Currency Note Press produces banknotes for the Indian government. The Reserve Bank of India is consulted before printing banknotes of a specific denomination (RBI).
When governments borrow or print additional money to enhance liquidity in the economy, this is known as deficit financing. The government might invest and spend the newly acquired funds to help the economy recover. This can be accomplished by, for example, constructing infrastructure, which in turn produces work for a large number of people. Direct cash transfers to the impoverished, who will subsequently spend it, are another option.