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The Indian Economy in 2020


2020 was the year that changed everything. The Covid 19 pandemic affected everything from our day to day lives to the world economy in many different ways. Now, as we approach the next financial year and are waiting for the budget for the year to come out, let’s take a look back on the overall effect 2020 had on India’ economy.



Quarter 4 ( 2019-20 ) January - March The year began on a historic low as India’s GDP growth rate hit a 6 year low in the 3rd quarter of the financial year 2019-2020 and continued to de-accelerate to 4.2 % through to the beginning of 2020. This was the lowest growth rate recorded since the financial year of 2012-2013. Reports stated that in the early part of the year the economy was more vulnerable than it was during the Global Financial Crisis of 2008-09. The budget for the year failed to deliver what many had optimistically hoped for fueled by the fact that state level finances were also becoming increasingly strained. What this meant was that at that time, when India’s growth rate was at six-year low, governments both at the center and the state levels found themselves short on money.

8 of India’s core industries shrunk 9% despite a mere lockdown of 1 week in Quarter 1. The government quickly re-evaluated the GDP growth rates of Q1, Q2, Q3 and lowered them to an aggregate of 4.3%, estimating a growth in Q1 to 5.2% and declines in Q2 and Q3 significantly.

Quarter 1 ( 2020-21) April - June As the lockdown transformed from a curfew to whole weeks and months of strict home quarantine, the world truly came to realise the economic devastation which would follow. Within weeks we saw crude oil prices turn negative for the first time in history. Those same core 8 industries shrunk a further 38% within April itself. The only glimmer of faint hope was the meagre growth in the agriculture, forestry and fishing of 3.4%. However India registered another unwanted statistic as it experienced its largest GDP contraction in its history, a whopping 23%.

By May it became evident that without strong government support, the economy would collapse. Prime Minister Modi and Finance Minister Sitharaman announced the Atma Nirbhar Bharat Abhiyan package on the 13th of May, followed up with 2.0 and 3.0 in October and November. Millions of borrowers have received part of the thousands of crores that have been disbursed by the Government. This package allowed Indian farmers and small business owners to remain afloat as ecommerce swept the nation during the havoc of the lockdown. Another Issue rose as India went head to head with the world’s most rapidly rising economy, China. A series of military skirmishes which continue till date, albeit on a much lower scale, came to the limelight as soldiers clashed over the Galwan valley bridge near the line of Actual Control. India banned 59 Chinese apps and trade was banned subsequently as hostilities rose.


Many leading experts believed that the ‘Self-reliance’ was counterproductive and would fail in the long run, and that the Chinese trade ban was a waste of time. The nation was split into 2 a patriotism swept the nation and capitalist tycoons who engaged in trade with China were forced to find alternatives.

Quarter 2 (2021-21) July - September The Indian economy bounced back as lockdown protocols eased and paranoia among the population decreased significantly. However, India’s Gross Domestic Product on a year to year basis still dropped 7.5%, albeit lower than then 23% in the First Quarter. What this meant was that India entered its first technical recession ( continued GDP contraction for 2 continuous quarters). The RBI’s estimate of 8.6% was proven to be higher. The RBI estimated that by the next quarter, India would re-enter expansion and exit economic contraction. Nearly all Indian sectors had significant improvement. The construction sector contracted 8%, a massive improvement to the 50% in Q1 of the fiscal year. Fishing and forestry grew at the same rate as the previous quarter at 3.4% and the manufacturing industry rose 0.6 % after falling by nearly 40% in the previous quarter. Utilities like water and electricity also bounced back from contraction and grew 4.4%. The pace of recovery beat most predictions, aligning broadly with high frequency indicators that pointed to a pick-up in economic momentum.

Quarter 3 ( 2020-21) October - December Despites the challenge from a new wave of infections, the outcome of the US presidential election and positive news on vaccines had a sustaining impact on the prospects of the global economy. Equity markets, which were vacillating between rallies and sell-offs up to early November, have since surged past previous highs. Most of all, India bent the Covid curve : since mid-September, barring localized surges, infections slanted downward as the recovery rate shot upto 95%. By this quarter, vaccines in India had hit trials and were expected to begin distribution very soon.

The real GDP growth finally entered growth at 0.1%. Labour forces increased significantly and the central government’s expenditure rose sharply, for the first time since Q1 of the Fiscal year. The November RBI Consumer Confidence Survey showed that while consumer sentiment was higher that month than in July and September 2020, confidence was lower in November compared to the same period a year ago. The third quarter of fiscal 2020-21 will ended with employment of 395 million, which is 2.5 per cent less than the 405 million employed within the December 2019 quarter, as per CMIE data.

Contact service sectors such as hotels, restaurants, airlines, salons, which were doing exceptionally well before the pandemic, are among the worst hit, and will continue to struggle till the time the fear of the virus lasts. The CMIE jobs data point to worrying trends. As the restrictions were lifted, many who did not get jobs went on to leave the labour force. Typically, when more people find jobs, larger numbers should come looking. But the reverse seems to have happened since September. Women have been more impacted. Inflation has been a bugbear for policy makers in India

The Future According to the IMF, the economy is probably going to contract by 10.3 per cent within the current fiscal, then grow by 8.8 per cent in 2021-22. But while real GDP is expected to rebound, it may take almost two years for it to get back to pre-pandemic levels. IT Industries are expected to pick up by the beginning Q2 of the next fiscal year and employment may only reach pre-pandemic levels by 2022. 2020 truly was like no other year in the history of the Republic of India. Historic lows were experienced and India’s pattern of stagnant global economic involvement in terms of growth plans has resulted in mixed opinions in the way India has handled the Covid-19 pandemic. ~ Nehal Singhal & Shaurya Mahajan


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