Budget to set course for GDP pick-up after Covid carnage

Pandemic, strict lockdown pushed the Indian economy to 6th spot in 2020

New Delhi: Indian economy is now expected to see a faster turnaround given the impending rollout of vaccine, increased mobility and less disruptions' to business operations as the economy opens up but a lot will also depend on the upcoming Budget for 2021-22 to steer its course.

India, which had in 2019 overtaken the UK to become the fifth-largest economy in the world, was knocked off course somewhat due to the carnage that the pandemic and the ensuing strict lockdown unleashed - businesses were shut, consumption slumped, investments took a hit and jobs were lost. The combined effect being that the economy got relegated to the sixth spot in 2020.

The Budget for the next fiscal starting April 2021 that Finance Minister Nirmala Sitharaman will present a month from now will be the starting point for picking up the pieces after the economic destruction. The government's spending plans, particularly on infrastructure and social sectors as well as relief to sections hit by the pandemic and lockdown, will dictate the pace of recovery, analysts said. India's economy had been losing momentum even ahead of the shock delivered by the Covid-19 crisis.

The rate of GDP growth sank to a more than ten-year low of 4.2 per cent in 2019, down from 6.1 per cent the previous year. The pandemic bought a human and an economic catastrophe for India, with nearly 1.5 lakh deaths. Though the deaths per million are significantly lower than in Europe and the US, the economic impact had been much more severe. GDP in April-June was 23.9 per cent below its 2019 level, indicating that nearly a quarter of the country's economic activity was wiped out by the drying up of global demand and the collapse of domestic demand that accompanied the series of strict national lockdowns.

And a 7.5 per cent decline in GDP in the following quarter pushed Asia's third-largest economy into an unprecedented recession. As restrictions were gradually lifted, many parts of the economy were able to spring back into action although output remains well below the pre-pandemic levels.

While agriculture with bountiful harvest has been a driver of India's economic recovery, the government's stimulus spending in response to the Covid-19 crisis has been significantly more restrained than most other large economies. Sitharaman announced a total stimulus package of Rs 29.87 lakh crore, or 15 per cent of GDP.

That equals the total spending envisaged in the government's budget for the year to March. But the actual fiscal cost has been estimated at around 1.3 per cent of GDP, including 0.7 per cent for the incentive programme whose expense is spread over five years. Most saw this spending as grossly inadequate. The limited cash spending was on account of the government not generating enough revenue to even pay states for their share of GST. Revenue collections were hurt by the lockdown.

Yet, high-frequency indicators, including exports, automobile sales, energy consumption and manufacturing output have shown an uptick, which some have seen as an indication of a 'V' shaped recovery.