The focus is on quarterly GDP numbers now. In a quarter when the pandemic had hit very hard, you do not have to be an economist to predict that the numbers will not present a rosy picture. However, should the expected contraction in GDP numbers be a reason to shake our collective psyche and go into the shell of sorrow and despair? Everything has a context and the expected contraction in GDP numbers too can’t be without context in this pandemic year.
To understand the context, we need to look at the trends globally. Any contraction in GDP numbers is surely a cause for worry. But where do we stand in the world order in the GDP projection matters as the whole world is going through the crisis?
GDP Contraction Put in a Perspective
The World Economic Outlook update by the International Monetary Fund (IMF) back in June 2020 had observed this for the world. “The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.4 percent. Overall, this would leave 2021 GDP some 6½ percentage points lower than in the pre-COVID-19 projections of January 2020. The adverse impact on low-income households is particularly acute, imperilling the significant progress made in reducing extreme poverty in the world since the 1990s.”
This is how the real GDP growth of selected economy are projected.
India, though hit by the slowing of economy, has not slipped to abysmal in global projections. As the above table indicates, Brazil’s GDP is projected to contract by -9.1 per cent, and Canada’s by -8.4 per cent. In contrast, India’s contraction for the year 2020 projected at -4.5 per cent, making it look relatively better. Even economies as advanced as the United Kingdom (-10.2 per cent) and the United States (-8.0 per cent) are projected to contract.
The projected GDP contraction of some other countries for the year 2020 France (-12.5), Italy (-12.8), Spain (-12.8), UK (-10.2) is set to hit the double digit as well. This will be for them perhaps even worse than the 2008 recession.
With the projected GDP contractions of Russia (-6.6), South Africa (-8.0), besides China, India is clearly a stabilizing force that is holding the ground among BRICS nations. Even on a global scale when the large economies are contracting so sharply, India is predicted to keep a control on its challenge. This should give some perspective about India before we get too disheartened by the GDP numbers of this quarter.
Hit, But Not Down
Recent headlines also give perspective on how India is holding ground despite being hit by the pandemic. While major economies of the world are going into recession phase, India’s contraction has been contained in this very slowdown phase.
Future Not Gloomy
As soon as India started the Unlock process, there have been multiple indications to demonstrate the revival of consumption, which is critical to fuel further economic activities and stem the slide quickly. So, whatever may be the numbers of the foregone GDP quarter, it need not be taken into heart because of this emerging trend ahead.
This has been followed with many other green shoots. A recent Boston Consulting Group consumer survey to track sentiment against the virus has recently highlighted that The percentage of consumers expecting lower income reduced from 57% to 44%. Moreover, people planning to reduce their spending also fell from 53% to 42%. The survey also noted how there has been a pickup in routine activities with 53% consumers stating that they have been going out to work and 66% consumers saying that they have been visiting friends in the latest round against 15% and 10% respectively in the last round.
Furthermore, Centre for Monitoring Indian Economy (CMIE) had also recently highlighted that India’s monthly unemployment rate for July fell to pre-COVID-19 levels for the first time since March, indicating that the severe jobs crisis that loomed over the nation over the last three months was now subsiding. Data from CMIE revealed that the overall unemployment fell from 10.99 per cent in June, to 7.43 per cent in July. While the optimism is guarded, job numbers also show that things started to improve as soon as the unlock phases started to roll in.
A look at more headlines makes it amply clear that the economy is on the fast track to recovery.
So, the expected contraction of India’s GDP numbers for this quarter need not disheartened us or cause a gloom. The revival has already started. Many reforms and Aatmanirbhar focus unveiled in this difficult phase will start to evolve and bear fruits in the days to come.