India’s economic contraction last quarter sets back the progress for many years. The PM Narendra Modi’s ambitious targets of doubling the economic size to $5 trillion are almost out of reach.
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Contract in economy
The 23.90% drop in GDP in the June quarter from 2019 is the massive fall of economies tracked by Bloomberg. This prompted banks to depreciate their full-year predictions. The shrink in the economy happens for the first time in 40 years.
Due to the global COVID-19 pandemic, the GDP of the United States shrank at a rate of 5% during the first quarter of 2020. In India, many people lost their livelihood. This in turn affects the contribution to the gross domestic product of the economy.
Curb lending by banks
In previous years, India has overseen the growth rates of more than 8%, which steadily reduced in the last years following a crisis among banks that hit lending and consumption in the economy.
While the economic deterioration currently caused by the COVID-19 pandemic will last well beyond the widespread case of the coronavirus. So banks are unwilling to lending, fearing a jump in bad loans. While businesses have curbed borrowing and investments, that hauls the demand.
Effect of pandemic: on Jobs
India’s economy was not expanding rapidly, so it hinders the creation of jobs for more than 10 million young people who are enlisted in the workforce each year. The pandemic destroys jobs and drags millions of people to poverty.
As per the report, as many as 18.9 million salaried Indians, or 21% of the workforce lost their jobs between April and July 2020. In addition to this, nearly 7 million daily wage earners, hawkers, roadside vendors and construction workers lost their livelihoods.
The World Bank estimates that nearly 12 million Indians will be deprived where over a fifth of the population earn less than $2 a day.
Governments role: Antidote to the crisis
The government outlined 21 trillion rupees to support the economy during this pandemic. Whereas the focus is extensively on providing credit support to small and medium enterprises.
While various economists insist the government should grant universal basic income and also the RBI should finance the fiscal deficit. On the other hand, the government expected to reach more than double the original target of 3.5% of GDP in 2020.
Meanwhile, the implications on its credit rating are doubtful when the government attempts to open the bond market to foreign countries.
Also, the economy is expected to contract by 8.5% in FY 2020/2021 (April-March). Despite the grave situation, India is experiencing a V-shape recovery since the lockdown is lifted gradually. This further intends the government to carry out crucial economic reforms under its “self-reliant India” initiative. However, progress may be sluggish and steady.