India’s economy shrank nearly 24 pct last quarter

Sameer Yasir and Jeffrey Gettleman, The New York Times

Posted at Sep 01 2020 06:39 AM

Migrants travel home by cycle rickshaw from Punjab to Bihar in the village of Andhel, India, May 16, 2020. The Indian economy contracted by 23.9 percent in the second quarter, the most drastic fall in decades, as lockdown restrictions meant to contain the spread of the coronavirus wiped out jobs and businesses. Rebecca Conway, The New York Times

NEW DELHI — The Indian economy contracted by 23.9 percent in the second quarter, the most drastic fall in decades, as lockdown restrictions meant to contain the spread of the coronavirus wiped out jobs and businesses.

India’s decline was the worst among the world’s top economies, with the US economy shrinking 9.5 percent in the same quarter and Japan’s 7.6 percent.

Data released by the Indian government Monday showed the extent of the collapse in gross domestic product in the 3 months ending in June, with the construction, manufacturing and transport industries among the hardest hit. The figures reflect the onset of India’s deepest recession since 1996, when the country first began publishing its GDP numbers.

India’s picture is further complicated by the fact that so many people here are “informally” employed, working in jobs that are not covered by contracts and often fall beyond government reach, such as rickshaw driver, tailor, day laborer and farmhand. Economists say that official numbers are bound to underestimate that part of the economy and that the full damage could be even greater.

“The strict lockdown led to a sharp contraction in activity in Q1 with job or income losses being faced by people,” said Aditi Nayar, an economist at ICRA, an investment and credit rating agency in New Delhi. “Less formal sectors could manifest in a deeper contraction when revised data is released subsequently.”

In late March, Prime Minister Narendra Modi initiated one of the most severe lockdowns anywhere, ordering all Indians to stay inside, halting transportation and closing most businesses.

Millions of workers who over the years had been drawn to the urban centers for jobs started returning home to rural areas. But as the ailing economy contracted even more, officials desperate to stimulate business lifted some of the lockdown restrictions, allowing more movement, which led the virus to spread wide and far. The country is now recording the world’s highest number of daily new infections.

Just a few years ago, India, with a population of 1.3 billion people, was one of the world’s fastest-growing large economies, clocking growth of 8 percent or more.

But even before the pandemic, the economy had begun to slow down. For example, car sales plunged 32 percent in August 2019, the largest drop in two decades.

The data released Monday showed that consumer spending, private investment and exports had all suffered tremendously. The sector including trade, hotel and transport dipped 47 percent. India’s once mighty manufacturing industry shrank 39 percent.

The only bright spot, though relatively faint, was agriculture. Thanks to strong rains this monsoon season, the sector grew 3.4% versus 3% in the previous quarter.

Economists said that the surging coronavirus cases in the country might push recovery further away and that the central bank would increasingly come under pressure for additional stimulus payments and rate cuts.

Nayar, the economist, said that while some parts of India’s economy had started to recover, the rising number of infections and the steps taken to contain them suggested an uneven recovery. India has had 3.6 million infections (the third-highest number, after Brazil and the United States) and around 80,000 new cases reported each day, which are far more than anywhere else. Its death rate, though, remains substantially lower, which epidemiologists say is a result of a younger population than that of many countries.

Across India, many of the 28 states swing between opening up their economies and suddenly locking them down again, throwing businesses into confusion and keeping many people away from markets and shopping malls.

Modi has said he wants his country to become a $5 trillion economy by 2024 — the next major election, in which he is expected to run for a third term. In 2019, India’s GDP was around $2.9 trillion, making it the world’s fifth-largest economy, behind the United States, China, Japan and Germany. But next year, many economists believe, India’s economy could be 10 percent smaller.

Arun Kumar, a professor at New Delhi’s Institute of Social Sciences, said the informal part of India’s economy, which includes the millions of migrant workers who have lost their jobs, had suffered an even bigger blow than most people realized.

“My estimate is after the government takes the unorganized sector into account,” he said, the overall economic slide will be “minus 40%.”

On Thursday, India’s finance minister, Nirmala Sitharaman, blamed all of the country’s economic woes on the coronavirus.

“It is an act of God,” she said during a meeting with representatives from state governments, who have been begging for more federal help.But opposition politicians have reiterated that India’s economy had been stumbling for years under Modi, long before the pandemic. On Monday, after the dismal GDP figures were released, they made fun of Sitharaman, saying that if the agriculture was the only part of India’s economy doing well, it must be thanks to an “act of the Rain God.”

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