Introduction
India is one of the fastest growing major economies and is currently ranked as the world’s fifth largest economy. India’s commitment to fiscal discipline, sound external position, unprecedented foreign direct investment (FDI) inflows, comprehensive structural reforms, efficient delivery of services through the India stack and enhanced emphasis on social protection and financial inclusion have provided a robust framework for sustaining strong and inclusive growth going forward. India’s performance in the Doing Business Ranking, Global Competitiveness Index, Logistics Performance Index and Global Innovation Index are all positive and encouraging.
There are several underlying strengths that are indicative of the latent potential of the economy. India is currently bestowed with a “youth bulge” – by 2020, the average age in India will be 29 years. India offers an expanding market with income levels and size of the middle class increasing. Investments in infrastructure are projected over the medium term to lead to better connectivity and reduced logistics costs for businesses. State Governments have been proactive in helping improve business environment. Digital technology has led to positive disruption in both governance and businesses.
According to the economic Survey, 2018-19 assumed an average real annual growth rate in gross domestic product (GDP) of 8 percent from 2020-21 to 2024-25. It also assumed an inflation rate of 4 percent. This implied a nominal growth rate of 12 percent. Further, it assumed an exchange rate of Rs 75 per dollar in March 2025.
Presently, India is the fifth largest economy in the world with GDP of around US$ 3 trillion in 2019-20. If the US$ 5 trillion target is translated into reality, the country will leave behind Germany to become world’s fourth largest economy in 2024-25, only behind US, China and Japan.
India is projected to be the world’s most populous country by 2025, with at least 145 crore (1.45 billion) people. Given the large geographic and demographic size of the country, the target is the minimum the people of India can aspire for.
When all was going well at the beginning of this year, the outbreak of coronavirus epidemic in China was reported. All countries of the world were alerted. On March 11, 2020, the World Health Organization (WHO) declared the coronavirus epidemic as a pandemic. To cope with the medical crisis, the Prime Minister, in a televised address to the nation, announced on March 24, 2020 a stringent countrywide lockdown from March 25 to April 14 which was extended in installments until June 30 but with gradual relaxations.
In the months of April and May, all transportation (railways, airways, metros, road transport) was halted. Business establishments were closed down. The supply of only essential goods and services was permitted. The severity of the lockdown can be gauged from the fact that not a single motor vehicle was sold in the country during the month of April.
Data released by the National Statistical Office (NSO) on August 31, 2020 showed that India’s GDP contracted by 23.9 percent in the first quarter (April-June) of 2020 compared to the same period the previous year. The contraction affected the entire non-farm sector, construction being the worst hit. Agriculture was the only exception with a growth rate of 3.4 percent. As expected, countrywide lockdown in the wake of pandemic hit the economy hard. Both consumption and investment demand collapsed during the lockdown.
On October 9, 2020, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) stated that the Indian economy had bottomed out in April-June quarter and a process of sequential recovery with gradual removal of lockdown restrictions was underway. According to MPC, the economy—which contracted by 23.9 percent in the first quarter—was expected to witness a deceleration of 9.8 percent in the second quarter (July-September), 5.6 percent in the third quarter (October-December) and enter positive territory with a growth of 0.5 percent in the fourth quarter (January-March). The next financial year (2021-22) would begin with a 20.6 percent growth in the first quarter.
MPC forecasted that India could see its worst recession ever in 2020-21 with the economy contracting by 9.5 percent. Similarly, in its half-yearly South Asia Focus update released on October 8, 2020, the World Bank predicted that Indian economy would shrink by 9.6 percent in 2020-21 because of the pandemic. On the brighter side, the update projected that growth would rebound to 5.4 percent in 2021-22.
Likewise, on September 13, 2020, International Monetary Fund (IMF) in its biannual World Economic Outlook predicted India’s GDP to contract by 10.3 percent in 2020-21. It also said that the economy would rebound to an impressive 8.8 percent growth in 2021-22, thus regaining its position of the fastest growing emerging economies, surpassing China’s projected growth rate of 8.2 percent.
From the above projections, it can be inferred that the set back to Indian economy is short-lived and that it would rebound soon to pre-covid growth rate which may be reinforced as a result of stimulus packages and economic reforms, particularly in the agricultural and labour sectors, rolled out in the wake of the medico-economic crisis. Moreover, there are some positive developments in the economy which give hope for the future.
