The economic impact of the 2020 coronavirus pandemic in India has been largely disruptive. India’s growth in the fourth quarter of the fiscal year 2020 went down to 3.1% according to the Ministry of Statistics. The Chief Economic Adviser to the Government of India said that this drop is mainly due to the coronavirus pandemic effect on the Indian economy. Notably India had also been witnessing a pre-pandemic slowdown, and according to the World Bank, the current pandemic has “magnified pre-existing risks to India’s economic outlook”.
The World Bank and rating agencies had initially revised India’s growth for FY2021 with the lowest figures India has seen in three decades since India’s economic liberalization in the 1990s. However after the announcement of the economic package in mid-May, India’s GDP estimates were downgraded even more to negative figures, signalling a deep recession. (The ratings of over 30 countries have been downgraded during this period.) On 26 May, CRISIL announced that this will perhaps be India’s worst recession since independence. State Bank of India research estimates a contraction of over 40% in the GDP in Q1 FY21. The contraction will not be uniform, rather it will differ according to various parameters such as state and sector.
Within a month, unemployment rose from 6.7% on 15 March to 26% on 19 April.During the lockdown, an estimated 14 crore (140 million) people lost employment while salaries were cut for many others.
More than 45% of households across the nation have reported an income drop as compared to the previous year. The Indian economy was expected to lose over ₹32,000 crore (US$4.5 billion) every day during the first 21-days of complete lockdown, which was declared following the coronavirus outbreak.
Under complete lockdown, less than a quarter of India’s $2.8 trillion economic movement was functional. Up to 53% of businesses in the country were projected to be significantly affected. Supply chains have been put under stress with the lockdown restrictions in place; initially, there was a lack of clarity in streamlining what an “essential” is and what is not. Those in the informal sectors and daily wage groups have been at the most risk. A large number of farmers around the country who grow perishables also faced uncertainty.
Major companies in India such as Larsen & Toubro, Bharat Forge, UltraTech Cement, Grasim Industries, Aditya Birla Group,BHEL and Tata Motors have temporarily suspended or significantly reduced operations. Young startups have been impacted as funding has fallen. Fast-moving consumer goods companies in the country have significantly reduced operations and are focusing on essentials. Stock markets in India posted their worst loses in history on 23 March 2020. However, on 25 March, one day after a complete 21-day lockdown was announced by the Prime Minister, SENSEX and NIFTY posted their biggest gains in 11 years.
The Government of India announced a variety of measures to tackle the situation, from food security and extra funds for healthcare and for the states, to sector related incentives and tax deadline extensions. On 26 March a number of economic relief measures for the poor were announced totaling over ₹170,000 crore (US$24 billion). The next day the Reserve Bank of India also announced a number of measures which would make available ₹374,000 crore (US$52 billion) to the country’s financial system. The World Bank and Asian Development Bank approved support to India to tackle the coronavirus pandemic.
The different phases of India’s lockdown upto the “first unlock” on 1 June had varying degrees of the opening of the economy. On 17 April, the RBI Governor announced more measures to counter the economic impact of the pandemic including ₹50,000 crore (US$7.0 billion) special finance to NABARD, SIDBI, and NHB. On 18 April, to protect Indian companies during the pandemic, the government changed India’s foreign direct investment policy. The Department of Military Affairs put on hold all capital acquisitions for the beginning of the financial year. The Chief of Defence Staff has announced that India should minimize costly defense imports and give a chance to domestic production; also making sure not to “misrepresent operational requirements”.
On 12 May the Prime Minister announced an overall economic package worth ₹20 lakh crore (US$280 billion),10% of India’s GDP, with emphasis on India as a self-reliant nation. During the next five days the Finance Minister announced the details of the economic package. Two days later the Cabinet cleared a number of proposals in the economic package including a free food grains package.