The world is facing massive recession due to coronavirus. There are fears that this recession may even be worse than the Great recession of 1929.
Coronavirus is still affecting the world at alarming rate and real vaccines are still a few months away. And even if vaccines are found by this year, mass production would be a big issue. So, we must not hope for any respite from Corona anytime soon. The economies around the world has contracted in previous quarter. Indian GDP is down by 23.9%, US economy is down by 32.9%, UK economy has contracted by 20.4%, German economy is down by 9.7%, French economy down by 14%, Italian economy by 12.4%, Japanese economy is down by 7.2%. So, its global phenomenon and not local.
But Indian case is slightly different as Indian economy was not in best shape prior to corona crisis. The huge NPA crisis has started to show its effect and Modi Govt. & RBI also woke up to talking the issue late when Urjit Patel became RBI Governor (it is believed that his predecessor was not very inclined to really look into this issue). Another issue was that the first and second lockdown in India was very severe and India almost came to stand still. There were lockdown in US and Europe also but it was not as strict as India. Even these days the daily average of new cases in India is around 80,000 and we still have some kind of lockdown and our schools & colleges are still closed. The lifeline of India – Indian railways is still closed apart from a few hundred trains.
Let us see the performance of different sectors of Indian economy in quarter of April – June 2020. Manufacturing, construction and trade sectors experiencing massive contraction at 39.3%, 50.3%, 47% respectively. Financial sector contracted by 5.3% and the only bright spot was farm sector which grew at 3.4%. As per SBI estimate, Indian GDP may shrink by almost whopping 10% in full year 2020-21. Other estimates say that Indian GDP growth this year may be between -6 to -10 %. It is expected that second quarter and third quarter will not be as bad as first quarter of 2020-21. As India is yet to see the Coronavirus peak, so I don’t think even fourth quarter (Jan 2021-March 2021) will see a positive economic growth. The biggest issue is that the demand in India is very weak. Unless people will get confidence they will not spend enough money.
The financial condition of Indian Govt. is also not good. There has been a tussle going on between center and state about revenue sharing of GST. And Govt. will have to give some sort of stimulus package in coming quarters. There are two options – take more loans or print money. And both are not good in long term. There are fears that debt to GDP ratio may go up to 85 to 90% (which is not good for developing economy). And printing more money would mean inflation and Govt. may not chose the path due to fear of electoral setback. I hope that India will have at least “ V” shape recovery but in case there is second corona wave in winter then even “ W” shaped recovery will be in doubt. And this crisis will also drag economic growth of 2021-22. So even at the end of March 2022 if our GDP is at level of March 2020 then it would be a very good result for India.
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