‘Indian economy on V-shape recovery path post unlock’

Story by  ATV | Posted by  [email protected] | Date 29-01-2021
People watch the giant screen outside Bombay Stock Exchange in Mumbai
People watch the giant screen outside Bombay Stock Exchange in Mumbai


New Delhi [India]: The Economic Survey 2020-21 tabled by Finance Minister Nirmala Sitharaman in the Parliament on Friday said the country's economy after being gradually unlocked since June 2020 has experienced a V-shaped recovery.

"Despite the hard-hitting economic shock created by the global pandemic, India is witnessing a V-shaped recovery with a stable macroeconomic situation aided by a stable currency, comfortable current account, burgeoning forex reserves and encouraging signs in the manufacturing sector output," the survey noted.

The survey said the V-shaped economic recovery is due to mega vaccination drive, robust recovery in the services sector, and robust growth in consumption and investment.

Country's Chief Economic Advisor Dr. K Subramanian has likened India's economic recovery to the Indian cricket team's recent victory against Australia.

"The cover also captures the V-shaped recovery that has happened in the economy. In fact, it mirrors V-shape performance that the Indian cricket team delivered in Australia well after being short out for 36 in an hour, they went on to win the series. The resilience of the Indian economy is mirroring the resilience of Indian cricket team as well," he said.

It stated that with the economy brought to a standstill for two complete months, the inevitable effect was a 23.9 per cent contraction in Gross Domestic Product (GDP) as compared to the previous year's quarter. This contraction was consistent with the stringency of the lockdown.

However, "While there was a 23.9 per cent contraction in GDP in quarter 1 (Q1), the recovery has been a V-shaped one as seen in the 7.5 per cent decline in Q2 and the recovery across all key economic indicators," said the survey.

To capture the lagged impact of stringency on economic indicators, the survey used a three-month moving average of stringency index, which shows that the month-on-month change in the three-month moving average of the stringency index has a positive relationship with the growth in each of the economic indicators.

"Thus, the initial stringent lockdown has supported a V-shaped recovery across all the economic indicators," it noted.

According to the survey, the evidence from the experience of Spanish flu establishes that cities that intervened with lockdowns earlier and more aggressively experience stronger recovery in economic front in the long run and learning from this experience, India implemented an early and stringent lockdown from late March to May to curb the pace of the spread of COVID-19.

"Given the enormous uncertainty that policymakers faced when making the lockdown decisions, such precise expectations during the lockdown is indeed extremely far-fetched. Therefore, the evidence that has been documented indeed shows convincingly that the stringent lockdown saved lives and supported a V-shaped recovery across all the economic indicators," it noted.

The survey also forecasted that India's real GDP will record a growth of 11 per cent in 2021-22 and nominal GDP by 15.4 per cent -- the highest since independence.

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