How Does COVID-19 Affect India’s Economic Growth?

How Does COVID-19 Affect India’s Economic Growth?

India’s GDP fell by 24.4 percent between April and June 2020. Second-quarter of 2020-21 financial year (July to September 2020) saw a 7.4% contraction, with the third and fourth quarters (October to March 2021) witnessing a modest rebound, with GDP growing by just 0.5 and 1.6%, respectively. India’s GDP contracted by 7.3% throughout the whole 2020-’21 financial year (in real terms, adjusted by inflation).

Between 1958 and 2020, India’s national GDP has fallen just four times since independence, with the greatest loss being during the year 1980. (5.2 percent ). 2020-’21 will be the worst year in the history of the country’s economy and far worse than the global downturn. Because of the downturn, the global inequality trend, which has been rising over the past three decades, has been reversed.

Even though economies throughout the world have been impacted severely, India has had one of the most severe declines. For 2020-21, the global GDP declined by 3.3 percent, while emerging markets and developing countries fell by 2.2 percent during the same time period. Even more obvious is the reduction in GDP due to Covid-19 because India’s growth rate was among the greatest in 2019.

Depending on the research of the World Economic forum the rate of unemployment for the end of 2021 will be even lower, than the global average rate. In addition to that, the data shows that the income of Indian people will decrease even more in the near future. Because of the increased unemployment rate and lowered incomes, people started to seek extra income and self-employment opportunities. One of the viral opportunities for many Indians was trading. According to the Forex broker reviews, many FX brokers started to allow Indian traders to create accounts with them as the number of Indian traders drastically increased after the COVID-19 outbreak.

Moreover, it should be said that the Indian economy had lower unemployment rates, which were also maintained through liberal labor market regulations to keep people employed. Compared to other nations, India’s increased budgetary allocations for different social safety measures have been comparatively low. When it comes to other metrics, India is comparable to the reference group, but its extra health sector budgetary measures are less than half of the reference group’s measures. 

COVID-19 and Indian Economic Growth

Economic growth expectations in India have been slashed considerably as a spike in job losses and defaults on loans predict a slower recovery from the financial shock of COVID-19.

According to a range of data – from the incidence of check bounces to the quantity of mortgaged gold jewelry up for sale, the economic harm from a second wave of the illness is far worse than previously thought.

Consumers may be reluctant to purchase due to the psychological impact of the viral tragedy in India this year, which killed thousands of people.

However, the State Bank of India, India’s largest lender, has reduced its growth projection to 7.9 percent from 10.4 percent.

In addition, some foreign institutions, such as Barclays and UBS, have lowered their forecasts for the year ahead. It also suggests that the economy, which was worth $2.9 trillion before the crisis hit, has suffered more damage.

India’s economy, which is quickly growing, might be severely impacted by a slow growth rate.

I won’t say disaster, but it won’t be pleasant,” said SBI’s Chief Economist Soumya Kanti Ghosh after cutting his projection.

During the first wave of coronavirus, India launched a $266 billion plan to assist the economy. However, the majority of the money went to banks to enhance their credit, with less than a tenth of the money going to assistance programs for the poorest citizens.

Unlike several industrialized economies, India did not establish large-scale employment assistance programs, and the government has not proposed a substantial stimulus package since the second wave of job losses began. 

Many individuals are cutting back on their expenditures due to soaring unemployment, state lockdowns, a huge increase in hospitalizations and fatalities during the second wave, and worries of a third wave.

As a result, the Retail Association of India’s chairman Kumar Rajagopalan predicted a further drop in sales in May, including food, footwear, clothing, and cosmetic products.

Automakers Maruti Suzuki (MRTI.NS) and Hero MotoCorp (HROM.NS) suspended production for several days amid growing infections, and sales of automobiles and motorcycles plummeted 30 percent from March to April. Sales are anticipated to plummet by over 60 percent in May. 

While vehicle sales rebounded following the initial wave last year, it wasn’t on the magnitude witnessed elsewhere, and the recovery was short-lived and uneventful.

New automobile sales in Europe increased by 256 percent year-over-year during April in several other countries as pent-up demand was discharged.

Shashank Srivastava, executive director of Maruti Suzuki, India’s largest manufacturer, pointed out that the second virus wave had a profound psychological impact on individuals because of the spike in fatalities and hospitalizations.

According to him, “automobiles are a discretionary purchase that requires individuals to be in the right state of mind.”

Increased mortgage defaults on gold jewelry that is traditionally passed down from generation to generation are driving sales, experts say.

There is also an increase in “cheque bounces”, which occur when there is not enough money available in an individual’s account to cover loan payments or credit card obligations.

A fintech business specialized in digital loans collections and recoveries found that in May, the check bounce rate for loan payments quadrupled to 21 percent from a year earlier, while the rate for credit card payments climbed to 18 percent from 10 percent, based on Credits Solutions data.

An Indian polling organization found that many people’s living conditions have plummeted and that the majority of people do not see “any glimmer of optimism in the future 12 months.”