The contraction in gross domestic product has been much deeper than most analysts expected and underscored the gravity of India’s initial strategy to contain the Covid-19 pandemic, which involved forcing businesses to shut down. overnight and resulted in job losses estimated at 140 million.
The Indian government’s tax response to the crisis has also been criticized as not giving enough money to those whose incomes have plummeted due to government restrictions.
“This confirms what we have been saying for a long time – India’s lockdown has been the hardest and has inflicted a huge economic cost,” says Priyanka Kishore, head of the economy of India and South Asia -Is at Oxford Economics. “These GDP data confirms the magnitude of the cost.”
Naushad Forbes, president of engineering firm Forbes Marshall, called the GDP data “the worst performance in our history”.
As the lockdown hit the economy, it failed to stop the spread of the pathogen among the 1.4 billion Indians. The country detects more new cases of the coronavirus than any other – with around 79,500 confirmed infections in the past 24 hours.
At the current rate, India is expected to soon overtake Brazil in cumulative Covid-19 cases, just behind the United States. The official death toll is 65,000 and includes Pranab Mukherjee, 84-year-old former president and finance minister, who died Monday evening. By comparison, the pandemic has killed more than 183,000 people in the United States and more than 120,000 in Brazil.
India’s economy was weakening before the pandemic, with GDP slowing for four consecutive years. GDP grew only 3.1% in the first quarter of 2020, on an annualized basis.
But India’s coronavirus lockdown, imposed on March 24, has been devastating. In the April to June quarter, private consumption contracted 27% year on year and investment fell 47.5%.
Construction output fell 50 percent and manufacturing output fell 40 percent. Agriculture was a rare bright spot, growing 3.4 percent in part because closed farmers were allowed to return to work faster.
As the lockdown eased at the end of May, economic activity showed an initially marked recovery, driven by pent-up demand after weeks when Indians could buy nothing but food, drugs, cleaning products and personal care products.
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But investment bank Nomura said in a recent memo that the pace of normalization was slowing. He estimated that aggregate demand in July was only 67% of pre-pandemic levels. In August, economic activity was disrupted by the imposition of localized state-level lockdowns, which New Delhi has now banned.
KV Subramanian, the government’s chief economic adviser, said there were signs of a rebound. “The worst is over and the V-shaped recovery may continue,” he told local television, while admitting that an improvement in discretionary consumption would depend on the spread of Covid-19.
India’s slowdown is putting pressure on public finances as revenues fall below expectations and Indian states struggle to pay their bills. However, many economists believe New Delhi – which has been criticized for its meager fiscal response to the crisis – needs to do more to support the economy, especially support demand.
“If you want to get out of this very, very deep hole, you will need a lot more political support,” Ms. Kishore said. “The ball is pretty much in the court of the central government that they need to show their willingness to support the Indian economy. . . They should definitely spend more.