India’s economy shrinks 7.3 per cent in 2020-21, worst since independence iStock image
INDIA’S economy contracted 7.3 per cent in the financial year ended March 2021, its worst recession since independence as pandemic and subsequent lockdowns left millions jobless.
However, the country’s growth rate picked up in the fourth quarter to 1.6 per cent, after exiting its first “technical recession” since 1947 following two consecutive quarters of contraction.
Higher growth rate in January-March was mainly driven by state spending and manufacturing sector growth, data from the statistics ministry showed on Monday (31).
According to a study by Bangalore’s Azim Premji University, about 230 million Indians plunged into poverty last year due to the pandemic. It defined the poor as those living on less than 375 rupees (£3.6) a day.
Relaxation in restrictions towards the end of 2020 helped propel a tentative recovery in economic activity, but this may prove short-lived due to an explosion in Covid-19 cases during April-May.
The second wave of coronavirus in India has claimed lives of 160,000 people in eight weeks. It prompted further lockdowns that threw 7.3 million people out of jobs in April alone, according to the Centre for Monitoring the Indian Economy (CMIE).
Unemployment soared to a near one-year high of 14.7 per cent in the week ending May 23, the CMIE data showed.
So far, India has recorded 28 million Covid-19 infections, second only to the US, and 329,100 deaths as of Monday, as per the latest data from the government.
The pandemic has made economic situation more painful for India where 90 per cent of the workforce is in the informal sector with no social safety net, and the government has refrained from announcing any fresh major stimulus measures in response.
The government has faced growing criticism — including from Nobel prize-winning economists Esther Duflo and Abhijit Banerjee — for focusing on loans to hard-hit businesses rather than direct cash handouts to vulnerable households.
British financial services firm Barclays has recently pegged the economic cost of India’s second wave at £52.2 billion, or 2.4 per cent of its gross domestic product (GDP).
India’s annual economic growth rate picked up in January-March compared with the previous three months, but economists remain pessimistic about the current quarter due to a huge second wave of Covid-19 infections and a slow pace of vaccination.
Economists said the country faces a slowdown in consumer demand as household incomes and jobs have declined, and there is limited scope for the government to offer growth stimulus due to its rising debt.
Consumer spending, the main driver of the economy, rose 2.7 per cent year-on-year in January-March following a revised 2.8 per cent fall in the previous quarter, government data showed.
Economists have cut their growth forecast for 2021-22 fiscal year to 8-10 per cent from an earlier 11-12 per cent.
Analysts said that the slow rollout of vaccination drive could pose medium-term risks to growth, especially if the country were to experience a third wave of Covid-19.
Prime minister Narendra Modi has faced criticism for the slow pace of his four-month-old vaccination campaign, which has inoculated lesser than 4 per cent of India’s 1.38 billion people.