Current affairs

India under economic crisis: GDP plunges by 24% - Is the govt flattening the wrong curve?

By alagu, 01 September, 2020
India, Economy., COVID-19, Nationwide lockdown

In what has become the unprecedented economic crisis in recent times, India's economy during the first quarter (April-June) of the current fiscal year had faced a hardest hit than what was estimated as the nation's GDP data that was released on Monday amid the COVID-19 pandemic and the push of economic stimulus. The plunge has alarmingly signaled whether the Center is flattening the wrong curve. 

The data had revealed that the nation's GDP had shrinked 24% in the first quarter of the current fiscal year (2020-21) and it has levied more challenges for the country to revive back from the plummeting grounds amid unlocking the lockdown in a graded manner. According to the reports, the current decline is the country's worst performance since it began reporting quarterly data in 1996. 

As per the National Statistical Office, the Gross Domestic Product (GDP) at the first quarter of 2020-21 is estimated at Rs 26.90 lakh crore while it was Rs 35.35 lakh crore during the first quarter of 2019-20 through which the nation had witnessed a plunge of 23.9%, which had become an adverse development in the current year, majorly due to the uncertainty posed by the COVID-19 pandemic and the lockdown triggered by the outbreak. 

The drastic decline has strongly underlined that the nation's economic trajectory is heading towards recession which combinedly contributed by the factors such as a reduction in purchasing power, which is the sequel of the loss of incomes and rising unemployment, grounds for higher defaults on debts, plunging capital expenditure, and lower taxes for the government and along with these factors, the major downfall in consumption and limited economic movement have also been pivotal players behind the unprecedented decline and these were the areas where it had gone wrong. 

Bracing up the aberrant trend, India has become the major economy in the globe to face such a decline in the first quarter and India is followed by the UK (20.4%), and Malaysia (17.1%) whereas China, which was the original epicenter for the global pandemic, has recovered with 3.2% growth in the April-June quarter. Being the third-largest economy in Asia and fifth-largest in the world, India has been worryingly wheeling towards the path of recession if the current state of the economy prevails for longer. 

Some of the sectors like manufacturing sectors and construction sectors have declined. The manufacturing sector had plunged to 39.3% in the June quarter while the construction sector declined 50.3% during the three-month period and trade, transport, communications, and hotel sectors had plummeted at 47% in the June quarter. The service sector and private consumption hadn't escaped from the crisis. The economists attribute recession to the negative growth for two consecutive quarters. 

According to the analysis of Care Ratings, investment growth had faced a sharp decrease of 47.9% in the June quarter and the entity said that the demand in consumption and investments, which are key drivers to push the economy forward, would less likely see a significant improvement throughout the year and it further added that the government spending would have to do the heavy lifting and the economists had also pressed that they expect pressure on growth to continue in the quarters that are lying before the nation. 

Though the government claimed that it has been rolling out several measures to deal and remedy the crisis and to resuscitate the ailing sectors by pumping in the fiscal stimulus amid the lockdown, the economists asserted that the government needs to do more to fix the damages and bring the economy back to the revival path and provide perfect medicine for the wounded sectors due to the pandemic and they pressed the government to propel further stimulus. 

According to Reuters, Krishnamurthy Subramanian, the Chief Economist of the Ministry of Finance, said India's economy was set for a 'V-Shaped' recovery and should perform better in the coming quarters as indicated by a pickup in rail freight, power consumption, and tax collections. 

However, some economists said the current state of the economy would likely push millions more into poverty and called the Central and state governments to initiate more steps to repair and reconstruct the economy and in absence of proper lubricant, the economy won't be gaining momentum. As an unprecedented push, Prime Minister Narendra Modi had in May announced Rs 20 lakh crore economic stimulus package, which is 10% of India's GDP, to revive the ailing sectors and industries and to provide free food and rations to the affected and vulnerable people. 

 

However, the consumer and manufacturing are yet to get recovered and the country is currently hoping to restore normalcy after relaxing the restrictions and lockdown, which let millions of Indians lose their jobs and incomes. After the GDP data captured the real state of the economy, it had triggered a massive outrage across the country and many have demanded Finance Minister Nirmala Sitharaman to step down. Senior Congress leader and Former party's president Rahul Gandhi said, "GDP reduces by 24%. The worst in Independent India's history. Unfortunately, the Govt ignored the warnings."

 

Former Union Finance Minister and senior Congress leader P Chidambaram charged the government and said, "Of the world’s major and advanced economies, India’s economy declined more than any other country’s except the economy of the United States. What does that tell us? That Mr Modi stands second only to Mr Trump in terms of incompetent economic mismanagement.".

 

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