Indian Economy 2021: The fiscal year (2020-21) started with the whole country being under one of the most strict and badly planned lockdowns in the world. Earlier we had no idea that April 2021 would be terrible in terms of Covid cases than April 2020.
What’s horrible is that this new surge in the number of cases is taking place despite a year of awareness about the Covid-appropriate behaviour and protocols but also with the availability of multiple vaccines. Unorganised plans of the vaccination drive by the government — with numerous places declaring shortages— also disregard for maintaining social distancing norms by the people leaves no one without blame for the current spurge.
Table of Contents
How will this affect the Indian economy and its recovery?
Without the latest hike in the number of covid cases, the first half of the current fiscal year — that is, from April to September — was expected to see a “V-shaped” recovery. But, unfortunately, this V-shaped recovery is quite different from the V-shaped spike in Covid cases.Why? Because the recovery in economic growth in the first half of the current financial year will be an optical one. In other words, because the GDP shrunk by as much as 15% in the first half of the last fiscal year, the low base effect will ensure that the GDP growth rate looks very handsome in the first half of 2021.
The curve of Covid-19 cases and mobility trends will be having a direct impact on economic activities. GDP went down by 24.4% in the quarter which ended June 2020. According to the second advance estimates, 2020-21 is expected to suffer a GDP contraction of 7.96%.
According to Crisil, by the end of 2021-22, GDP will merely be approximately 2% higher than March 2020. Moreover, the GDP would be roughly 10% below its pre-pandemic level and the latest surge threatens the income levels but also the distribution.
It is expected that this will be the worst affected quarter in the fiscal year 2021-22 because we can say that the second wave will be ending in June 2021. Since we have vaccines now, it is reasonable to expect that the pace of new infections will slow down as vaccinations pick up.
Unemployment can be observed in urban and rural areas:
Along with battling the economic crisis unemployment levels are far from normal. Three weeks ago, Mumbai-based think tank CMIE said India’s unemployment rate increased to 6.9 per cent in February 2021.
The unemployment rate in urban India has been rising since the beginning of the current month. From 7.21% on April 4, it jumped to 9.81% for the week ended April 11 and further to 10.72% for the week ended April 18, CMIE’s latest data showed.
This shows a shift in the burden of job losses to urban India, reversing the trend of rural India largely bearing the brunt of Covid-induced strain on employment.
The data indicated that the unemployment rate in urban areas declined despite a rise in the joblessness rate on a national level. Rural areas, which have a lower level of income, saw a star surge in unemployment during this time.
Inflation is rising
Currently, we are witnessing rising inflation which is one of the biggest hurdles that could disrupt economic growth. This has been pointed out by many brokerage houses. It may be noted that retail inflation is once again rising in India after cooling down for a few months. In February, retail inflation increased due to a rise in food and energy prices. Retail inflation, measured by the Consumer Price Index (CPI), jumped to 5.03 per cent in February. It is an indication that prices of essential items such as energy and food are on a hike. And this will adversely affect many households in India.
All Industries are getting affected by this crisis:
Investment Sector
If we see the bigger picture of the global financial crisis in 2007-09 and the current pandemic, the share market did not respond very differently. The financial crisis affected India by the sudden decline of capital inflows and reduction in domestic and international demand.
In March when lockdown started, the equity market noticed a confidence level by foreign investors but the second wave of Covid-19 is more damaging than we imagined as in the initial 13 days of April 2021, there is around -$186 million in the net outflow FPI in the equity market.
The second wave degraded the economy than the first since the initial period of the pandemic, every country was bleeding and India was emerging as more stabilized than others to the investors. However, presently developed economies managed to control Covid-19 cases and accelerate vaccination programs efficiently, compared to India with losing investors’ confidence.
Apart from the investment sector, other industries are also been affected differently, the current outlook is:
Automobile sector
The sale of cars, vans, and utility vehicles have gone down approximately 2% y-o-y basis; followed by a 13% fall in two-wheelers and 66% in the three-wheeler. The vehicle registration went down by 29% y-o-y in March including two-wheeler registration by 35%, three-wheeler, and commercial vehicle declined by 51% and 42%, respectively. However, passenger vehicles and tractor sales went up by 29% each.
Airline Sector
This sector saw a fall of 50% in bookings and increasing calls of passengers for cancellations.
Transportation sector
Due to the increased probability of lockdown, various industries are experiencing reverse migration of staff. The availability of trucks is 20% lower at this time and it might further decline if other states impose stricter norms. Transporters estimated a loss of $2.4 billion of revenue in April only. The demand for rental trucks reduced by 6-8% in April and the utility of the truck fleet reached a peak at 85% in March, but currently, it decelerated to 70%. The overall industry generates $12 billion per month and it is calculated that 15-20% of business will get affected in April.
Retailer and Mall
In January-March 2021, the retail business went up to 95% of its pre-pandemic business. After the second wave, by the end of March, there is a sudden decline in footfalls by 30% and anticipated the loss of 20-25% of the revenue in the first quarters.
Property
The rental prices for the prime location have fallen to the level of 2017 and below. It is estimated around 10-15% declined as landlords are willing to adjust, just to cover fixed costs. In cities, it was observed that many people shifted back to their hometowns due to lockdown and work from home situation.
Groceries Sector
The demand for groceries and fruits remains constant despite the high possibility of a lockdown almost all over the country since these are essential items.
Construction Sector
The industry of Indian Construction Equipment generates approximately $7 billion annual revenue, it is ranked third globally. The demand for construction equipment is at an all-time high as after the first phase of COVID-19, the sector bounces back with the anticipation of 7% growth. The major segments are the road construction and mining sector. Currently, the industry is operating at 80% of capacity and it is expecting ₹30 billion of investment. By the end of March 2021, approximately 90,000 construction vehicles are sold compared to 84,000 units in FY20.
Compared to the rest of the world, the vaccination rate is far below the level required to contain the virus itself. Also, the second wave is likely to be more dangerous. It is observed that if the health situation worsens substantially and tighter restrictions are reimposed in India, then this would threaten the Indian economy and we will face worse situations.
Also Read: UFO video: US Defence Department Confirms Leaked Video Is Authentic, Railways will run ‘Oxygen Express’ trains to meet high demand during the 2nd COVID-19 wave
