Economic Recovery After Pandemic: Corollary

Covid 19 had Dismantled not only the Indian but economies all around. It was predictable that India would perform badly but the results we see are the worst. “The 23.9% contraction in India (and the numbers will probably be worse when we get estimates of the damage in the informal sector) compares with a drop of 12.4% in Italy and 9.5% in the United States, two of the most Covid-affected advanced countries.” Said Raghuram Rajan.

The total demand for goods and services in the GDP fell to 23.9%. It happened as all the four engines of growth which are private consumption, investments done by private sector businesses, demand for goods and services generated by the government and the net demand crashed abominably. Private consumption itself accounted for 56.4% of the overall GDP and if we compare the 2nd quarter of 2020 with the 2nd quarter of 2019, we can observe a huge fall of -27%. Similarly, investment done by private businesses has seen a fall of -47% and the government has increased its expenditure to 16% respectively. The government has increased its expenditure to support the GDP but the effect is less because it is accountable for only 11% of the growth rate. If we calculate the net demand by subtracting the imports from the exports, we can observe a growth of 165%, which is good news as well as a miss leading data as it shows us that the imports are less than exports but the reduction seen is not because we become self-reliant, it is there because of less demand in the economy. For example, if we observe the fall in prices of crude oil, it happened because the demand for the same was less during the lockdown. 

Steeply falling revenues and central grants have led to the 18 biggest States reporting a collective revenue deficit of 285% of budget estimates from April to June. The consolidated fiscal deficit of the centre and the states is expected to touch 13% of GDP this fiscal, said the SBI report.

Unified payment interface (UPI) transactions stood at 3.29 lakh crore in September with several transactions at 180 crores, as per the data realised by NPCI. Volume-wise transactions grew by nearly 12% if we compare it with the midterm quarter of 2020. Crisil’s credit ratio of Indian companies from April to September was at 0.54, the lowest in more than a decade, with 296 downgrades and 161 upgrades. The ranking system’s credit growth will plummet to a multi-decadal low of up to 1% in 2020-21, rating agency Crisil’s said.

After analysing the data mentioned above, it is predictable that India will possibly have the ‘K’ shape of economic recovery, instead of a ‘V’ or ‘U’ shape of economic recovery. ‘K’ Shape recovery has its pros and cons but basically, it shows that some industries of specific sectors will be burgeoning in this period whereas many will be totally dismantled.