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Why India’s economy is showing signs of recovery despite pandemic induced headwinds

Economy: It is no news that scrutinizing India’s monthly economic data, India has shown signs of major recovery. This is due to the arrival of India’s festive season which is ramping up the demand in the economy.

It is here to be noted that this pattern of revival and recovery was seen during the last wave when the economy had started recovering due to the revival of production and demand in the economy due to the festive season and pent-up demand in the economy. The sector which has the most to gain through such demand is that it will give a boost to consumer-dependent sectors. However, even though the market might be recovering, full recovery might be a distant or an arduous dream as there are still possible threats from another possible surge in Covid-19 infections.

According to Jyoti Prakash Gadia, who is the managing director of the investment bank Resurgent India possible green shoots are effectively visible in certain sectors in the economy. But adding the word of caution, she stated that the economists and analysts aren’t exactly sure whether the worst is over for the economy or not.

Shoots of growth in Economy

As has been earlier reported, the latest government economic data has shown immense growth. This is due to the fact that India‘s gross domestic product had grown by a significant 20.1 per cent from April to June. Though this comes at a low base as during the same time in 2020, India had shown unprecedented contraction due to the imposition of stringent lockdowns in the economy. In fact, the effect of the lockdown was so crippling that India had slipped into a technical recession in decades.

economy showing signs of recovery despite headwinds: finance ministry | business news

However, even though the economy might have been alleviated by the low base of the last year, it is to be noted that the economic growth comes despite the fact that India was effectively grappling with a deadly second wave of Covid-19. The growth also comes as a surprise as the crippling second wave had led the state governments to impose local partial lockdowns in their areas. However, economic activity was not hampered to a larger degree as the lockdowns that were imposed were partial that had allowed essential activities to be carried out at a nominal pace.

According to S&P Global, India’s economic health has immense potential for recovery in the coming future. However, the rating agency has warned of the burgeoning inflation that is quite likely in the coming months.

If the S&P’s growth forecast for the current fiscal year is to be scrutinized, it stands at 9.5 per cent for Asia’s third-largest economy, India.

Economic indicators

In the past few months, the signs of recovery have been seen in some key high-frequency economic indicators. These include the GST collection, FDI collection, railway freight, power consumption in different sectors, and more that have significantly sustained economic recovery on a year-on-year comparison and basis.

the indian economy: a fragile recovery from covid 2.0 | orf

The recuperating service sector

Even though the service sector was one of the worst-hit sectors in the economy, it too returned to growth in the month of August. It had grown to an emphatic of 56.7 compared to 45.4 that was recorded in the month of July. It is to be noted that IHS Markit Purchasing Managers’ Index below 50 indicates contraction and above it indicates growth.

It is to be noted that the services sector expanded at its fastest pace since the pandemic had ascended. Given the economic data, it is the first time in four months that the service sector has exponentially expanded. According to IHS Markit, such an expansion is due to the businesses reopening taking place across the country. Additionally, increased and improved confidence in the robust vaccination drive too has been a large contributor.

It is due to the renewed vigor and enthusiasm that many companies are significantly hopeful that the festive season this year will be more promising and lucrative. will be better than last year.

It is to be noted that the festive season is already underway with Ganesh Chaturthi celebrations. The festive season will effectively peak in November during the Diwali celebrations.

reserve bank of india - publications reserve bank of india - publications

Thus, it can be rightfully stated that given the robust pace of vaccination in the country and with increased enthusiasm and confidence in the growth of the economy, festive demand is expected to be stronger this year.

This predictable scenario will be a particularly lucrative opportunity for the brick-and-mortar retail sector. It is to be noted that this sector was among the worst-hit sectors in the economy that was hit hard by the pandemic mainly due to the closure of non-essential shops and the halting of constructive activities in the economy.

Contentions

Given all the favorable attributes in favor of the Indian economy, it is to be noted that several business owners are hugely concerned about consumers’ willingness to spend lucratively and pompously, given the current environment of apprehensions of the third wave.

Such concerns have been alleviated as the public has spent a huge part of their disposable income and savings on healthcare needs during the second wave. Thus, given the crippled financial state of the economy, consumer willingness to spend in the economy might be below.

Thus, the prospects of India’s growth look promising but will this trend of buoyant spending sustain amidst the threat of the third wave is still a contentious and arduous problem that needs to be solved.

Edited by Sanjana Simlai.

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