The social, political, and economic conditions of a country contribute significantly to its development, with the economy sharing the major responsibility among them. A strong economy is a necessity for building a strong country.
Understanding The Economy
When India gained independence, they decided to adopt a centrally-planned economic system which allows only the government to make important decisions regarding the economy, like the manufacturing and distribution of products. Till 1991, the government mostly focused on building the industrial sector. They soon realized it was unsustainable and lifted most of the restrictions, which led to a huge growth in the country’s private sector. Since then India has become a mixed economy, with private and public sectors co-existing. Our country also leverages international trade; the economy grew from $293 billion in 1992 to $2.7 trillion in 2018.
The agricultural and industrial sectors have been the main source of revenue and income contributing significantly to the Gross Domestic Product (GDP).
Over the past 60 years, the IT sector managed to increase its percentage in the GDP from a fraction to 54.4% in 2018-19.[1]
Previous Slump
Back in 2011-12, India experienced a sudden economic slowdown after the boom in the 2000s. The growth rate slipped to 5.3 percent in the fourth quarter of 2011-12 due to mismanagement of the manufacturing and farm sectors. This was the lowest rate at that time compared to the previous years; however, immediately after, the economy picked up and was showing a stable growth rate until last year.
Current Crisis
The pandemic has plunged the world economy into a deep recession, with recovery prospects particularly grim for developing countries. India’s economy was struggling long before the start of the pandemic.
The agricultural percentage had fallen to 15.87% of the GDP, as per 2019. The numbers then became slightly stable in June, but due to the onset of COVID-19 in the rural areas, production decreased drastically. The overall GDP growth has fallen continuously for the last eight quarters. It was 8.2% in March 2018 and was 3.2% in March 2020.
The shutting down of most services that were deemed “non-essential” for a period of time during the onset of the pandemic impacted the economy even harder.
Numbers
According to the press release of the “Estimates of GDP for the first quarter of April-June (2020-21),” the numbers provide a very bleak scenario.
GDP on Constant (2011-2012) Prices in the first quarter (Q1) of 2020-2021 is estimated at ₹26.90 lakh crore as opposed to ₹35.35 lakh crore in 2019-2020, showing a negative 23.9% contraction, which is said to be one of the worst incidences of negative economic growth since 1996, as compared to the 5.2% growth in Q1 of 2019-2020.
Quarterly GVA at Basic Price at Constant (2011-12) Prices for Q1 of 2020-21 is estimated at ₹ 25.53 lakh crore, as against ₹ 33.08 lakh crore in Q1 of 2019-20, showing a contraction of 22.8 percent.
GDP on Current Prices in the Q1 2020-21 is estimated at ₹38.08 lakh crore, as against ₹49.18 lakh crore in Q1 2019-20, showing a contraction of 22.6% as compared to 8.1% growth in Q1 2019-20.
GVA at Basic Price at Current Prices in Q1 2020-21, is estimated at ₹ 35.66 lakh crore, as against ₹ 44.89 lakh crore in Q1 2019-20, showing a contraction of 20.6 percent.
Causes
This economic slowdown has happened due to many reasons. Many sources say that the root cause of this problem lay in the act of demonetization that occurred in 2016[2]. This caused a major disturbance to the economy; thus, destabilizing the farming and manufacturing sector. This act also caused major job losses and killed the informal economy. The government believed that demonetization would clean up black money and revitalise our economy, but we are yet to see the benefits of this as the actual numbers tell a different story.
Many other factors like high population, high unemployment rates, poor infrastructure, less efficiency, and discrepancies in the farming sector have also contributed to this slump. Moreover, the COVID-19 pandemic brought about vast changes in the living habits of people. Transport and trade services were shut down to prevent the spread of infection, many jobs were shut down due to the lockdown, and most of the other services were closed. This reduced income and revenue majorly affected the already struggling economy, reducing the growth rate drastically.
Measures
The government is slowly and strategically opening up services to prevent the collapse of our economy. The recent freight movement showed a surge in profit for the first time since the lockdown. Moody’s Investor Service predicts India to post strong enough growth and pick up in the second half of the year. The government has introduced packages to provide relief to small businesses, like the MSME package in the month of February this year. Sources also say that the measures taken to boost economic growth and kickstart the investment cycle could actually stabilize the economy.[3]
Conclusion
As the end of the pandemic is nowhere near in sight, the financial threat to our economy worsens day by day. Even though the government has taken measures and introduced schemes to improve and stabilize our economic growth rate, we can only hope that we come out stronger from this deadly situation.
Article by-
Chinmayee Dindore,
PES MUN Society
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