On Monday, data released by the Ministry of Statistics and Programme Implementation showed that India’s Gross Domestic Product had contracted by 23.9% for the April to June quarter. In gross value added terms, the economy had contracted by 22.8%, showed the data. The numbers quantified what was evident all around: the Indian economy is in doldrums.
To make matters worse, it is likely that the numbers will further worsen when the estimates are revised with better-quality data.
Things have never been this bad in recorded history. India has never experienced an economic contraction in at least four decades. Since 1996, when the country started publishing quarterly GDP data, this is the first instance of negative growth.
But these are extraordinary “once in one-and-a-half century” times, the government has insisted. The government’s chief economic adviser attributed the deceleration to “exogenous factors”, referring to the Covid-19 pandemic and the lockdowns it necessitated.
Earlier, the country’s finance minister Nirmala Sitharaman had blamed India’s unprecedented economic slump on “an act of god”.
In short, the government line has been that the virus had slowed down all countries and there was nothing particularly unique or alarming about India’s recession.
Its battery of online supporters led by Bharatiya Janata Party functionaries has gone one step ahead. The Indian slowdown, they have affirmed, was less dramatic than several other countries including the United States. Anyone suggesting otherwise, they said, was spreading “fake news”.
But, of course, the facts are for all to see. While the pandemic has slowed down every other country in the world, the scale of economic contraction in India was bigger than almost any comparable country. For example, the year-on-year quarterly decline – percentage change from the same quarter last year – in the United States was 9.1 %, significantly less than India’s 23.9 %. “It is much worse than every other large economy in the world,” said Vivek Kaul, an economics and finance writer.
What explains India’s dramatic slump? After all, the novel coronavirus spared almost no country, big or small. India’s particularly stringent lockdown – one of the harshest in the world – that brought almost economic activity to a standstill is to be blamed, observers say. Prime Minister Narendra Modi imposed the lockdown “very quickly without thinking through it”, said Kaul.
Others say that the lockdown only accelerated a decline that had set in well before the pandemic struck. “There is no denying that Covid has played a role, but before that too there was a clear deceleration in the economy evident in the government’s own data,” said Joydeep Baruah, an economist with the Guwahati-based Omeo Kumar Das Institute of Social Change and Development. “Since 2016-’17 there have been clear and visible signs of contraction – this reflected in both quarterly and annual data of the government.”
This deceleration, Baruah pointed out, was spread across all sectors. “It was all pervasive,” he said.
Since the economy was already failing, it could not withstand the “external shock” of the pandemic, Baruah said. “If the economy is resilient enough, it will absorb some of the consequences of the shock, but the Indian economy was in the middle of a continuous two-year recession when Covid struck,” said Baruah.
In these circumstances, a sharp recovery is also unlikely. The only way a revival could happen is through government spending. But as The Indian Express points out:
Even before the Covid crisis, government finances were overextended. In other words, it was not only borrowing but borrowing more than what it should have. As a result, today it doesn’t have as much money.
Corrections and clarifications: This article has been edited to reflect the fact that India’s GDP has contracted, not its rate of growth.