There is no known data on how many contractual and migrant workers lost their means of income. Even profit-making entities rapidly cut wage bills making the consumer risk averse who tightened their purse strings.
The Reserve Bank of India (RBI) in its September assessment called this a long-term disruption in consumer sentiment. But the slowdown in consumption activity dates several months prior to the onset of the pandemic. The Indian economy was on a downward slope since the last quarter of fiscal year 2017 when the government announced a ban of high-value currency notes.
Once touted as the bright spot among emerging market economies, India slowed to a 11-year low of 3.1% in the last quarter of fiscal year 2020. While the government argued that the slowdown in the Indian economy was cyclical rather than structural, fall in income and non-essential spending by consumers continued to be a drag on demand.
As India entered a new fiscal year faced with a Covid-induced lockdown, GDP growth witnessed a sharp contraction of 23.9%. Though the unlocking of the economy since June 2020 has led to significant recovery in various macro, micro and high frequency data points. On the upside, almost all leading economy watchers including the RBI now estimate that the Indian economy will shed the contraction mode and could grow as much as 21.9% in the first half of the coming fiscal year, largely due to the base effect.
Most estimates suggest that the rural economy will strengthen further, while urban demand is gaining momentum as unlocking spurs activity and employment, especially for labour displaced by Covid-19. Real estate sales have brightened the outlook with the residential sector seeing an acceleration in sales leading to a fast-paced recovery from the impact of the pandemic. Residential sales accelerated by 51% in Q4 as compared to Q3 2020, a JLL report states.
Instead of chest thumping, now is the time to tread with extreme caution. While economic activity indicators rose quickly over September and October, led by pent-up festival-led demand, they have moderated since then as the festive mood fizzles out. RBI data shows that customer activity on spends via point-of-sale, e-commerce and UPI have moderated in December. We also need to be careful of uneven recovery in sectors like aviation, hospitality and tourism, as they have the potential to ruin the return to normalcy. All in all, India needs to fix its pre-Covid issues to restore its old glory as the fastest growing economy in the world.
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