In last few months the Indian economy is being unlocked in a phased manner. Under unlock 5.0 the cinemas and multiplexes will be allowed to open from October 15 with 50 per cent capacity, and states and Union Territories are allowed to take a decision on opening schools from the same date. This is like giving a psychological boost to pull the decelerating economic growth back to normal. There are two important observations in this regard. States will have to take a call on how safe it would be to open up educational institutions and other places such as parks, restaurants, malls and theaters with covid19 safety precautions. And two how willingly and sensibly the public responds to the new normal?
The data released for the first quarter of the Indian Economy had revealed that India’s GDP had contracted 23.9 per cent compared with 5 per cent growth in the GDP in the same quarter last year. Well, if go for the sector-wise analysis, this time the agricultural growth rate out shined all other sectors registering 3.4 per cent rate of growth. India lives in villages and agriculture supports almost two thirds of India’s population directly or indirectly. However, the performance in the secondary and tertiary sectors was not satisfactory at all. Though it was being projected that there may be some contraction in the manufacturing and services sector due to the mass lock-down being extended in many prime cities of the nation, yet the fall in the growth rate would be so steep was no one’s guess!
Covid19 has hit some sectors harder than others
Construction activity was hit hard due to mass lock-down and mass exodus of labor to the home- towns. The results were stark. It decreased to almost half of what it was in the first quarter of the last year. Covid19 affected the service sector also badly. There was 47 per cent fall in this sector in the first quarter compared to the similar period last year. Manufacturing activity fell by 40.7 per cent and mining too registered a fall by 22.4 per cent due to the mass lock-down, lack of demand and reduced liquidity.
As the pandemic is a global phenomenon, the exports also contracted for the fourth straight month in June as shipments of key segments like petroleum and textiles declined but the country’s trade balance turned surplus for the first time in 18 years as imports dropped by a steeper 47.59 per cent. Exports in value terms declined by 12.41 per cent to USD 21.91 billion in June on weak global demand due to COVID-19.
Signs of Recovery were also seen though
According to a statement released by the Ministry of Finance in the month of June itself, early green shoots of economic revival were noticed in May and June with real activity indicators like electricity and fuel consumption, inter and intra-state movement of goods, retail financial transactions witnessing pick up due to prompt short term and long term policy measures taken by the government and the RBI in both to revive the economy at the earliest with minimal damage.
In fact comparing the Q1 performance of the current fiscal with the corresponding quarter of the last year, might not be a fair representation of how well the economy was performing because you just shouldn’t do so. Why? the reason is simple. Covid19 is unprecedented. Something not heard of ever before. So the assessment could rather be with ‘how bad the bad could have been’ and how good it is that thankfully as it didn’t work out as bad!
Unlock process yielded mixed results
The first nationwide lock-down for 21 days was declared on 24 March 2020 by the Government of India as a preventive measure against the COVID-19 pandemic in India. This was extended with revised guidelines in most states till May 30. While the containment zones continued to be under lock-down down till June 30, 2020, services were resumed in a phased manner starting from 8 June. It was termed as “Unlock 1.0” which marked the end of the lock-down phase in the country. With the lifting of restrictions in the subsequent periods, industrial activity was reported to be resuming. The Index for the month of July 2020 was 118.1 as compared to 54.0, 89.5 and 108.9 for April 2020, May 2020 and June 2020. The retail inflation growth rate decelerated to 6.69 per cent in the month of August compared to 6.73 per cent in the month of July, 2020.
However, the number of Covid19 infected cases has also been increasing at alarming rates during this entire unlock process. India’s corona virus case tally has already passed 6 million this week. However, over 5 million of them have recovered as well. The deaths reported are less than 0.01 million till date (almost stabilized at 1.6 per cent in last three weeks). Moreover the number of active cases added are getting reduced of recently.
Unlock 5.0 has a bias towards restoring normalcy ?
Many state governments have already released the guidelines for the unlock phase 5.0. Now the challenge would be to maintain social distancing norms and ensure that people do not actually become covid19 complacent. The unlock 5.0 results would hold the key for the future of the Indian economy in the times to come. As there are positive signs seen already in terms of an uptick in the level of economic activity in the previous 4 unlock phases; we may genuinely hope that the economic activity may register a sharp increase in the short to medium term. However, future unlock blueprint shall be based on how effectively we are able to contain the fresh number of covid19 cases under unlock 5.0 which is going to open up places where people may come and go in groups.