Darkest Before Dawn: Can India Survive Its Worst Ever Recession?

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Bolt your doors, batter down your hatches, brace yourselves. Recession is about to make landfall.

According to Goldman Sachs, a multi-national investment major, the Indian economy is set to experience its worst-ever recession in the wake of the coronavirus pandemic. The Gross Domestic Product, aka GDP, is expected to contract by an annualized 45% in the second quarter from the prior three months, compared with the firm’s earlier forecast of a 20% slump, the steepest in 41 years.

The prediction has put forth an optimistic recovery of 20% in the third quarter. Although the projections for the fourth and first quarter of the next year remain unaffected at 14% and 6.5%, it has been severely dragged down due to the nationwide imposed lockdown.

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Worst Recession: Can India survive?

In a bid to revive the economy, the Central government announced easing restrictions in certain sectors to boost economic activity whilst extending the nationwide lockdown until the end of the month, keeping in place many but not all of the strict rules.

Many economists are quietly confident that the country is reasonably better prepared than during the previous GFC of 2008. Even though the nation didn’t enter the lockdown in a financial hotspot, it has found itself embroiled in one ever since. The government has readied aggressive remedial financial aid to help the economy endure. The recently announced Rs 20 lakh crore economic package by India government is claimed to be constituting 10% of India’s GDP. However, some analysts have pointed out that a significant portion of the aid is inclusive of measures which have been previously announced. The RBI has also issued economic guidelines adhering to the new situation.

The Goldman Sachs’ report has also noted that while there had been a series of structural reform announcements across several sectors, these reforms are more medium-term in nature and therefore not expected to have an immediate impact on reviving growth. The poor data that was received in the months of March and April has also contributed to the deeper trough shown in their analysis.

The ground reality is that impact on industries and employees have been profound. Salary slashes have been forced upon the employees in order to minimize the losses. Similarly, thousands have been furloughed until such time as the pandemic comes to pass. While the industries did start operating in some regions catering to the guidelines laid down by the government, they have and are still operating at a considerably lesser workforce. The challenge is also to stimulate demand. Even though supply chains have eased up, owing to regions being categorized in different zones, companies are facing many problems to plan logistics and continue operations. The country’s exports and imports also reported a contraction of 60% year-over-year in April. Even for the month of March, where the lockdown was only for a week, industrial production contracted by 16.7%, and exports fell by 34.6%.

India is a consumer driven economy of about 60%, unlike some other countries such as China, where the economy is more investment-driven. As a percentage of the GDP, we are only spending 1.2%-1.3%. 60% of the economy needs help and that is where the money is not going to come from. The country’s fiscal deficit numbers have also emerged as a potential cause to worry amid the crisis even as economists continue to stress that India as a nation is better prepared to bear the strain that might bring upon compared to recent times.

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Everybody in the current crisis will go down. In India, we may go down from whatever that was projected 7% to 1.9%. The IMF estimate of 1.9% at that particular point in March was the fastest of any major economy in the world. In other words, the IMF has given its own certificate that even when things are very bad for the globe as a whole, India will be one of the best performers and emerge well out of the current crisis.

All positive bearings aside, only time will tell how well we truly cope with the pandemic. Until that time, all we can hope is some considerate measures be taken from the government and industries. Working collectively for the greater goals will then see us truly emerge well off from the recession.

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