Spurred on by a nationwide vaccination drive, India is seeing a healthy “V-Shaped” economic recovery. According to an article authored by top officials of the Reserve Bank of India, the country is on the cusp of posting positive growth for financial year 2020-2021. It is only natural for India to be able to launch and sustain possibly the world’s largest vaccination programme against COVID-19. After all, India leads the world in terms of vaccine manufacturing capacity and has plenty of experience with mass vaccinations, having successfully used vaccines to battle polio and measles.
Economic Outlook
Despite suffering huge contractions in the first two quarters of financial year 2020-2021, 23.9% and 7.5% respectively, the Indian economy is on a rebound. Business activity continued to expand in the 3rd quarter with the Markit India Services Purchasing Manager’s Index recording 52.3 points for December 2020, indicating expanding business activity.
Demand too has remained stable and continues to grow, while manufacturing activity also remained resilient. Consumer activity was up as well and even exports showed healthy signs of recovery in December 2020.
Thus, despite original projections of a 7.5% contraction in India’s GDP across 2020-2021, given the present economic Indications, and the personal views expressed by senior RBI officials, it is reasonable to expect India’s economy to end the financial year relatively flat or with modest growth.
Sector Overview
The agriculture, forestry and fishing sectors have shown positive growth throughout the crisis. This is excellent news in terms of the robustness of India’s economy. However, it is unreasonable to expect these sectors to spur economic growth on their own, without a proper recovery in manufacturing.
Professional services, real estate and financial services did not suffer as badly as some other sectors and a recovery is now underway. However, industrial and consumer demand will dictate how effective any recovery will be.
While construction is seeing a significant recovery and communications has enjoyed significant broad-based growth as a result of the pandemic, gains in these areas are likely to be overshadowed by the dire state of tourism, which will take time to recover, coupled with general slowdowns in domestic trade.
Government-driven sectors such as defense, public administration, and utilities are likely to return to normalcy much faster than other sectors. However, it is not possible for these sectors to sustain a wider economic recovery on their own.