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Economic Recovery Post Pandemic [Latest News]

The Covid-19  pandemic is a global crisis that has hit the world on multiple fronts. As a result, India’s economy has taken a massive hit. There has been a sharp contraction in economic activities in 2020. The economy is believed to resume to positive growth this year. Economic recovery post-pandemic is an important topic for the UPSC exam and it covers education-related aspects of the UPSC syllabus . In this article, you can read all about the important points concerning the recovery of the Indian Economy Post Pandemic.

Economic Recovery Post-Pandemic:- Download PDF Here

Post-Pandemic Recovery (2023)

The post-pandemic recovery of the Indian economy is primarily driven by the growth in demand for goods and services produced in the country. The demand can originate from four sources: household consumption, business spending, government spending, and exports.

Post pandemic recovery of Indian economy

Image source: The Hindu

Sources of Growth:

  • Chart 1 shows the contributions of these sources in achieving growth since the pandemic . 
  • The chart indicates two significant upward movements in growth rate – 2021-22 Q1 and 2022-23 Q1. 
  • The former was mainly driven by investment, and the latter by both consumption and investment.

Role of Households and Businesses:

  • Chart 2 illustrates the role of consumption and investment in the recovery .
  • Chart 2a shows that household consumption has played a passive role in the recovery, as the share of consumption and GDP growth moved in opposite directions, except in 2022-23 Q1. 
  • On the other hand, Chart 2b indicates that investment has played a significant role in the recovery, as it moved concurrently with the growth rate.

Importance of Credit:

  • Consumption and investment can be financed through current incomes and credit , which means the state of credit may become crucial in their sustainability. 
  • Chart 3 presents consumption and investment together with the total credit in the economy, and the two have moved coterminously . This indicates that credit has played a crucial role in the recovery.

Impact of Globalized Finance: 

  • Chart 4 shows that the Reserve Bank of India (RBI) had to increase the Repo rate due to the rise in interest rates by the U.S. Federal Reserve. 
  • This rise in the Repo rate is essential to maintain the differential between the Fed rate and the Repo rate, to prevent capital flight and loss of value of the rupee. 
  • However, the rise in interest rates may have a dampening effect on growth , especially where credit has played a crucial role.

The fiscal arm of the state in a situation where the interest rates are rising is important, and credit has played an essential role in the recovery. The fiscal arm needs to take necessary measures to ensure sustained growth in the economy.

India’s Economy and Covid-19 Pandemic

The Indian economy was in one of its worst-ever phases even before the Covid-19 pandemic.

  • GDP growth fell continuously for eight quarters. GDP was 8.2% in March 2018 and had fallen to 3.1% in March 2020. 
  • Private consumption and investment had collapsed even before the pandemic.
  • Nominal GDP growth in 2019-20 fell to just 7.2%, the lowest since 1975-76.
  • As per the data from the Controller General of Accounts , gross tax revenue collections were 81.6% of the budget estimates in 2019-20, which is the lowest since 2000-01 .

In the wake of the pandemic:

  • With rampant job losses and surging covid-19 cases, the Indian economy was facing a recession in September 2020.
  • The economy recorded the largest GDP contraction (23.9%) for a financial year quarter in the First Quarter of 2020.
  • The manufacturing and construction sectors shrunk by 39.3% and 50.3%, respectively, while the overall services sector contracted by 20.6%.
  • As the economy gets unlocked, it has started to recover from the pandemic-induced slowdown on the back of various government initiatives and is expected to carry on this momentum.

Indicators of Recovery Post Pandemic

In this section, we talk about a few indicators of economic recovery in the post-pandemic phase, although the pandemic as of April 2021, seems to be entering into another phase of surging infections. It is safe to say that we are not yet in the post-pandemic phase in the true sense of the word.

NIBRI Index:

  • Nomura’s India Business Resumption Index (NIBRI), a measurement for tracking the extent of normalisation in the economy, hit 98.1 points in February 2021. It had hit a record low at 44.8 in April-June during the national lockdown.
  • The economy has reflected growth prospects due to fiscal activism.

Investments:

  • FDI equity inflow in India stood at US$ 49.97 billion in 2019-20.
  • Foreign Portfolio Investment has been Rs. 12.9 trillion (US$ 174.31 billion) in India between 2020 and 2021 (as of September 2020).

GDP Indications:

  • The National Statistical Office estimated real GDP growth to be (-) 7.7% as opposed to (-) 10.3% projected by IMF in October 2020.
  • RBI’s monetary policy committee had projected a GDP of (-) 7.5%.

Revival of Imports & Exports:

  • Merchandise imports experienced a growth of 7.6 per in December 2020.
  • The rise in the imports of pearls and precious stones, machinery and electric goods shows the revival of Domestic Economic Activities .

Financial Market Surges:

  • The BSE index jumped 91 per cent from a record low of  25,881 in over 10 months.

GST Collection:

  • The GST collection was Rs 1.15 lakh crore in December 2020.
  • The collection was the highest since the GST implementation. Read more on Goods and Services Tax (GST) .

India’s Economy and Recovery Factors

Some of the stimulus packages introduced by the Government are discussed below.

  • The Finance Minister announced an INR 1.7 trillion relief package in  March 2020.
  • It was termed Atmanirbhar Bharat Abhiyan. 
  • The combined package works out to roughly 10 percent of the GDP.
  • It included a Rs 1.7 lakh crore package of free foodgrains to the poor and cash to poor women and the elderly.
  • The Finance Minister announced a comprehensive stimulus package worth INR 2.65 lakh crore in November 2020 .

Atmanirbhar Bharat Abhiyan

  • The five pillars of this programme are economy, infrastructure, technology-driven systems, demography and demand.
  • Import substitution, reviving demand and promoting export-oriented industrialisation were three prime focus areas.
  • The key beneficiaries of this initiative are – Banking, MSMEs and Agriculture sectors.
  • The scheme has 500 million beneficiaries in the health sector.

Read more on the Atmanirbhar Bharat Abhiyan in the link.

Household Savings

  • The Centre for Monitoring Indian Economy, RBI said household financial savings in India shot up to 21% of GDP in the first quarter of the fiscal year 2020-21.
  •  The household financial savings was 7.2 per cent in 2018-19 and 8.2 per cent in 2019-20.
  • CMIE Managing Director cited a recent report by the McKinsey Global Institute that expected a strong rebound in consumer demand with the end of the pandemic in countries like the US, China and Germany.
  • As mobility restrictions are removed, households are in a strong position to spend.
  • Household savings will play a vital role in the economic revival.

Consumer Sentiment in India

  • As per the CMIE Report, the  Index of Consumer Sentiments in India was 46.8% lower in March 2021 than its average level during April 2019-March 2020.
  • Indian households witnessed a huge increase in savings but the sentiments recovery is not the same.
  • The Index of Consumer Sentiments tells about the changed views of households regarding the purchase of non-essentials and durables .  
  • The fiscal transfers by the Indian government to households during the lockdown in the form of MGNREGA and PM-KISAN impacted consumer sentiments in Rural Areas.
  • Consumer Pyramids Household Survey, CMIE reports that the consumer sentiments in households with an annual income of over Rs 10 lakh were the least affected as of March 2021.

K- Shaped Recovery

  • India’s economy is expected to have a K-shaped recovery.
  • The K-shaped recovery was most evident in the September 2020 Quarter.
  • India’s GDP is expected to grow by 12.5% in the fiscal year starting from April 1, 2021.
  • The increased inequality will hit the consumption and growth of the economy.

Know more about the K-shaped recovery in the linked article.

  • India’s economy seems to be in better shape than apprehended post the pandemic.
  • Government initiatives including fiscal and social measures  have worked to the advantage of the economy in combating the slowdown.
  • The covid-19 pandemic has invariably changed the economic sentiments and functioning in India which is expected to have some long-term effects.
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Data map of India

India’s Economic Recovery from Its COVID-19 Lockdown

  • By Chuck Burke
  • February 26, 2021
  • CBR - Economics
  • Share This Page

In response to COVID-19's rise, India ordered most of the country's 1.3 billion residents to stop working and remain indoors starting in March 2020—the world's largest lockdown. The government began relaxing restrictions in June, and research finds that while India's economy improved rapidly in the following months, the outlook for a return to prelockdown levels remained unclear.

In a report for Chicago Booth's Rustandy Center for Social Sector Innovation, Booth's Marianne Bertrand  and Rebecca Dizon-Ross , Centre for Monitoring Indian Economy's Kaushik Krishnan , and University of Pennsylvania's Heather Schofield  examined household-level survey data to establish a more comprehensive view of India's initial recovery than national economic indicators could provide. These charts and maps highlight a selection of their main findings.

The lockdown affected income differently across states

Employment remained down as the economy opened back up, income levels remained depressed as the lockdown was initially lifted, top earners’ income didn’t drop as sharply during the lockdown months, spending on basic food items remained down after the reopening.

Works Cited

Marianne Bertrand, Rebecca Dizon-Ross, Kaushik Krishnan, and Heather Schofield, "Employment, Income, and Consumption in India during and after the Lockdown: A V-shape Recovery?" Rustandy Center for Social Sector Innovation report, November 2020.

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recovery of indian economy after covid 19 essay

Published daily by the Lowy Institute

India’s economy after Covid

Digitalisation is helping the top and the bottom, but jobs are a big concern.

Digitalisation holds out the promise of dual benefits in driving business dynamism at the top and fostering greater inclusion through digitally enabled services and social transfers at the bottom (Jasper James/Getty Images)

  • India's Economy

One cost of the past two years of limited air travel is that it became too easy to lose touch with what was really happening in other countries. Having not returned in a number of years, a trip last month was a reminder that it’s always impressive to absorb, even fleetingly, how fast emerging economies such as India are changing, and notwithstanding the pandemic, largely improving. Better infrastructure, cleaner streets, more and better cars, fewer but better motorbikes, fancier shops and restaurants, way more mobile phones. The pace of change is well beyond what most people in rich countries like Australia are used to.

Nowhere is India’s progress more evident than in the tech sector. In the past India’s tech story was all about its dynamic entrepreneurs and skilled IT workers. Today however, the most impressive elements are what is happening at the bottom of the pyramid, via digitally enabled inclusion.

Sustained government efforts over more than a decade have delivered in spades. Most of India’s population now has access to both a unique biometric ID and a bank account. A decade ago, most lacked access to either formal identification or the banking system. A unified payments interface now allows for easy transfers and payments. And all this digitalisation is not only driving a boom in innovation and start-ups , but also enabling a promising modernisation of India’s notoriously “leaky” welfare system – using direct benefit transfers that are better targeted and reduce opportunities for corruption. Arriving just in time to make a difference during the pandemic, according to one study .

India’s broader economic outlook however seems less rosy. Much is made of the fact that India is now expected to be the world’s fastest growing large economy, given China’s ongoing structural slowdown . India’s economy has certainly rebounded strongly and most official forecasts are for growth of about 7 per cent over the coming years, despite a troubled global economy.

Delve only slightly deeper however, and things look less impressive.

Other countries will likely retain most of the benefits of greater openness. India risks forfeiting them.

India suffered an especially acute economic collapse in 2020. Despite the rebound, its economy is still 13 per cent below its pre-Covid trajectory (using earlier International Monetary Fund projections), or what might broadly be considered its “normal” running level – one of the biggest such gaps among major economies. None of the top economists I was able to speak to thought India would be able to close the gap ( nor does the IMF ). Many also suggested they wouldn’t be surprised if growth was much slower over the next few years, at say 5 per cent. High debt, a big budget deficit, accelerating inflation, and rising global interest rates mean India has little room to manoeuvre.

Delivering growth of 5-7 per cent might still seem pretty good. But most economists think India needs upwards of 7 per cent growth to create enough decent jobs for its young and rapidly expanding workforce. Especially after the setbacks caused by the pandemic which destroyed many better jobs and sent migrant workers back to the countryside. A major point of concern is that labour force participation, especially among women, seems to have been falling since before Covid-19 struck.

India has always struggled generating enough decent jobs, despite fast economic growth. The explanation lies in its unique growth model driven by relatively high skilled sectors (IT but also within manufacturing ) as opposed to the labour-absorbing low skilled manufacturing exports seen in most other non-resource driven rapid growth economies (in East Asia and more recently in Bangladesh).

Delivering better jobs, and faster economic growth, will likely require getting Indian manufacturing going in a much bigger way.

A smart phone factory in Noida, India (Anindito Mukerjee/Bloomberg via Getty Images)

Economists generally think doing so requires greater openness to trade and foreign direct investment (FDI), especially as a means of integrating into global value chains. It concerns many then that the Modi government has instead increased tariffs while spurning the Regional Comprehensive Economic Partnership. Trade negotiations with selected partners, including Australia and the European Union, seem motivated more by diplomacy than economics, and a weak substitute for broader liberalisation in any case. India has joined the US-led Indo-Pacific Economic Framework, but the arrangement is not about market opening, at least for now.

Distrust of China and concerns about supply chain resilience are driving factors but also cover for longstanding protectionist currents – now reinforced as the world seemingly converges on India’s more sceptical views of globalisation. Lost however is that most other leading economies are far more open than India to begin with, even if they are perhaps paring this back. Other countries will therefore likely retain most of the benefits of greater openness. India risks forfeiting them.

The government has not however given up on manufacturing. It is just pursuing its own strategy. First, it is hoping that domestic reforms and infrastructure investment can themselves improve India’s manufacturing competitiveness by enough to make a substantial difference. Second, for selected subsectors, the government has rolled out “production linked incentives” (subsidies) aimed at closing the remaining competitiveness gap and luring relocating global supply chains – with some success to date for instance in attracting iPhone contractors such as Foxconn to set up shop.

Supporters point to a jump in merchandise exports and FDI inflows as vindication. But a broader view suggests this is less meaningful than it seems. Trade in goods has boomed globally during the pandemic. India has only modestly outperformed the world average and global trade is expected to slow as demand conditions normalise (or worse). FDI inflows rose substantially through to the middle of 2021 but have eased since. India is big, so any improvement in manufacturing will be noticed. Relative to the size of India’s economy however, both merchandise exports and FDI continue to hover around the average levels seen last decade at 13 per cent and 2 per cent of GDP respectively.

As Amita Batra, economics professor at Jawaharlal Nehru University, has recently written for The Interpreter , a starting point to do better would be for Indian trade policy to prioritise deeper integration with ASEAN. Indeed, this was a key suggestion from several regional experts at the Delhi Dialogue on India-ASEAN relations (which is why I was in New Delhi in the first place).

India’s economy will probably continue to grow reasonably fast. Moreover, digitalisation holds out the promise of dual benefits in driving business dynamism at the top and fostering greater inclusion through digitally enabled services and social transfers at the bottom. Whether India can generate enough decent jobs for its people however remains the big concern.  

Roland Rajah’s travel was supported by Research and Information System for Developing Countries (RIS) to attend the Delhi Dialogue on India-ASEAN relations.

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The Indian Economy in the Post-pandemic World: Opportunities and Challenges

  • First Online: 23 November 2023

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recovery of indian economy after covid 19 essay

  • S. Mahendra Dev 3 , 4 &
  • Rajeswari Sengupta 5  

Part of the book series: India Studies in Business and Economics ((ISBE))

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In this descriptive study, we first analyze what the medium term future looks like for the Indian economy in a post-pandemic world, both in the context of an uncertain global environment and also in the context of India's own structural problems. We also highlight the structural challenges and opportunities for the Indian economy—what are the obstacles in India’s growth trajectory going forward, and what can be done to overcome them as India maneuvers through a complex global environment where geopolitics dominate trade, climate change concerns become critical and authoritarian regimes may increasingly lose favor with foreign investors and corporations. The objective is to provide a broad assessment of the factors that need to be critically addressed in order for India to not only achieve and sustain a high rate of growth but also to make the leap to a high income country and create adequate jobs.

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China: Interpreting the Economic Impact of the COVID-19 Pandemic in the Context of National Goals

Data obtained from the Second Revised Estimates for 2020–21 released on February 28, 2023 by the MOSPI (Ministry of Statistics and Program Implementation). It may be noted that national accounts statistics in India especially GDP data are potentially fraught with measurement errors as detailed in multiple studies (see for example, Nagaraj et al. ( 2020 ), Nagaraj and Srinivasan ( 2017 ), among others) and hence should be interpreted with caution. Wherever possible we have therefore supplemented this information with data from the private sector databases such as those published by the Centre for Monitoring Indian Economy (CMIE). All growth numbers are in constant prices (2011–12).

Data obtained from the Second Revised Estimates for 2020–21 released on February 28, 2023 by the MOSPI.

Data obtained from the First Revised Estimates for 2021–22 released on February 28, 2023 by the MOSPI.

Data obtained from the Second Advance Estimates for 2022–23 released on February 28, 2023 by the MOSPI.

Also see Roy et al. (2022), Dreze and Somanchi (2023) on poverty estimates.

Nominal values have been converted into real by using consumer price index (CPI) of the corresponding quarter.

See Srivastava ( 2023a ) on how digital transformation will help accelerate growth.

Singh, N.K. (2022), “Freebies are a passport to fiscal disasters”, Indian Express, April 22, 2022 https://indianexpress.com/article/opinion/columns/freebies-are-a-passport-to-fiscal-disaster-7879244/ ;

Subbarao ( 2022 ), “States, Freebies and the costs of fiscal profligacy”, The Hindu, June 27, 2022, https://www.thehindu.com/opinion/lead/states-freebies-and-the-costs-of-fiscal-profligacy/article65573164.ece ; Rangarajan ( 2022 ), “Good and Bad Freebies”, Indian Express, June 16, 2022.

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Acknowledgements

We thank Dr. Govinda Rao and other participants for their comments on an earlier version of the paper presented at the conference on “India's Contemporary Macroeconomic Themes”, honouring and celebrating the 90th Birth Anniversary of Dr. C. Rangarajan, held at the Madras School of Economics, April 21 and 22, 2023. The chapter also draws from the authors’ IGIDR working paper http://www.igidr.ac.in/pdf/publication/WP-2023-006.pdf

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Dev, S.M., Sengupta, R. (2023). The Indian Economy in the Post-pandemic World: Opportunities and Challenges. In: Srivastava, D.K., Shanmugam, K.R. (eds) India’s Contemporary Macroeconomic Themes. India Studies in Business and Economics. Springer, Singapore. https://doi.org/10.1007/978-981-99-5728-6_2

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The impact of COVID-19 and the policy response in India

Subscribe to global connection, maurice kugler and maurice kugler professor of public policy, schar school of policy and government - george mason university @kugler_maurice shakti sinha shakti sinha senior fellow - world resources international (wri india).

July 13, 2020

Much has been written about how COVID-19 is affecting people in rich countries but less has been reported on what is happening in poor countries. Paradoxically, the first images of COVID-19 that India associates with are not ventilators or medical professionals in ICUs but of migrant laborers trudging back to their villages hundreds of miles away, lugging their belongings. With most of the economy shut down, the fragility of India’s labor market was patent. It is estimated that in the first wave, almost 10 million people returned to their villages, half a million of them walking or bicycling. After the economic stoppage, the International Labor Organization has projected that 400 million people in India risk falling into poverty .

Agriculture is the largest employer, at 42 percent of the workforce, but produces just 18 percent of GDP. Over 86 percent of all agricultural holdings have inefficient scale (below 2 hectares). Suppressed incomes due to low agricultural productivity prompt rural-urban migration. Migration is circular, as workers return for some seasons, such as harvesting.

Evidence of Indian labor market segmentation is widely available—with a small percentage of workers being employed formally, while the lion’s share of households relies on income from self-employment or precarious jobs without recourse to rights stipulated by labor regulations. Only about 10 percent of the workforce is formal with safe working conditions and social security. Perversely, modern-sector employment is becoming “informalized,” through outsourcing or hiring without direct contracts. The share of formal employment in the modern sector fell from 52 percent in 2005 to 45 percent in 2012. During this period, formal employment went up from 33.41 million to 38.56 million (about 15 percent), while nonagricultural informal employment increased from 160.83 million to 204.03 million (about 25 percent) .

Most informal workers labor for micro, small, and medium-sized enterprises (MSMEs) that emerged as intermediate inputs and services suppliers to the modern sector. However, workers struggle to get paid, which the government identifies as great challenge. Payroll and other taxes, as well as limited access to subsidized credit for large firms, are disincentives to MSME growth. Although over half of India has smartphone access, relatively few can telework. Retail and manufacturing jobs require physical presence involving direct client interaction. Indeed, income for families unable to telework has fallen faster.

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The government’s crisis response has mitigated damage, with a fiscal stimulus of 20 trillion rupees , almost 10 percent of GDP. Also, the Reserve Bank of India enacted decisive expansionary monetary policy . Yet, banks accessed only 520 billion rupees out of the emergency guaranteed credit window of 3 trillion rupees. In fact, corporate credit in June is lower than June last year by a wide margin after bank lending’s fall. S&P has estimated the nonperforming loans would increase by 14 percent this fiscal year . Corporations have deleveraged retiring old debts and hoarding cash, as have households. Recovery through investment and consumption has stalled . These trends are exacerbated due to the pandemic. The manufacturing Purchasing Managers Index (PMI) recovered 50 percent since May but at 47.2 it remains in negative territory. Services contribute over half of GDP but its PMI, even after bouncing back , remains low at 33.7 in June. Consumption of electricity, petrol, and diesel have regained from the lockdown lows but are still 10-18 percent below June 2019 levels . Agriculture has been the bright spot, with 50 percent higher monsoon crop sowing and fertilizer consumption up 100 percent. Unemployment levels had spiked to 23.5 percent but with a mid-June recovery to 8.5 percent—and then crept up again marginally.

The National Rural Employment Guarantee Scheme (MNREGA) and supply of subsidized food grains have acted as useful buffers keeping unemployment down and ensuring social stability. Thirty-six million people sought work in May 2020 (25 million in May 2019). This went up to 40 million in June 2020 (average of 23.6 million during 2013-2019 period). The government has ramped up allocation to the highest level ever, totaling 1 trillion rupees. Similarly, in addition to a heavily subsidized supply of rice and wheat, a special scheme of free supply of 5 kilograms of wheat/rice per person for three months was started and since extended by another three months, covering 800 million people. There have also been cash transfers of 500 billion rupees to women and farmers .

However, MNREGA has an upper bound of 100 days guaranteed employment and it also does not cover urban areas. Agriculture cannot absorb more labor, with massive underlying disguised unemployment. A post-pandemic survey shows that the MSME sector expects earnings to fall up to 50 percent this year. Critically, the larger firms are perceived healthier. However, small and micro enterprises, who have minimal access to formal credit, constitute 99.2 percent of all MSMEs . These are the largest source of employment outside agriculture. Their inability to bounce back could see India face further economic and also social tensions. The economy is withstanding both supply and demand shocks, with the wholesale prices index declining sharply .

We identified labor market pressures toward increased poverty, both in the extensive margin (headcount) and intensive margin (deprivation depth). India needs to ramp up MNREGA, introduce a guaranteed urban employment scheme, and boost further cash transfers to poor households. Government efforts have been enormous in macroeconomic policy (fiscal stimulus and monetary loosening) to mitigate adversity but fiscal space is narrowing, requiring the World Bank and other international financial institutions to step up and help avert even greater hardship. Also, ongoing advances towards structural economic policy reforms have to continue.

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