Why Indian GDP Growth Rate is Declining?

3 Sep 2020  Read 633 Views

Don't you feel like the pandemic has turned your life upside down? You're getting bored in the house and bored with the quarantined life? You miss your pre-pandemic life, and you miss going out? For some of your life must have changed its course, and some of you might even have taken a life-changing decision yourself. Jobs lost, businesses down, socio-personal life down..

But do you know what else is down? What else faced a crash in its already slow-growing trends? The Indian economy. Yes, you read that right.

Due to the worldwide COVID-19 pandemic in the year 2020, the economies of the majority of countries around the world were struck hard to their core. Major national economies all over the world were doomed to witness a decline in their GDP for the first quarter. India, too, was expected to face a massive decline in its economic Gross Domestic Product (GDP), as the aftermath or probably the "on-going-math" of the pandemic. It was predicted that although the GDP will decline, it would not exceed 20%. But India, on Monday, faced a shock when the Ministry of Statistics and Programme Implementation (MoSPI) released the data for the first quarter (April, May, June) of the current financial year; which revealed that India's GDP had contracted by a massive 24% in the first quarter.

India's GDP decline in Q1: Where do we stand?

To put it in simpler words, the total value of goods and services produced in India, in April, May, and June this year collectively, is 24% less as compared to the total value of goods and services produced in India during the same 3 months, last year. The main reason behind this decline can be the limited economic activities during these months due to the nationwide lockdown, which was imposed to curb the spread of the COVID-19 pandemic.

Financial powerhouses of the world were expected to undergo an economic downfall due to the pandemic's disruption. However, the announcement of the actual numbers went beyond the predictions. Let's take a look at the GDP figures of the G7 nations along with that of India and China for the quarter of April-June, 2020:

As seen here, all the above countries, which are among the leading economies, faced a GDP decline, with India's figures being the highest. However, what was surprising was China's positive GDP growth, despite it being the epicenter of the pandemic, which caused this in the first place.

Who suffered the worst hit?

The pandemic worsened India's economic condition, which was already facing a slowdown from the last two financial years. Considering the gross value added by different sectors of the economy, all sectors saw a massive income downfall, except for the agricultural sector, which saw a growth of 3.4% in the quarter.

Out of all sectors, the worst affected were construction (–50%), trade, hotels, and other services (–47%), manufacturing (–39%), and mining (–23%). These sectors are the biggest job creators of the economy. In such a case, with their declining income and production, these sectors will not be able to afford more manpower, thus leading to a rise in unemployment in the country, with more people losing their jobs or failing to get any. 

The way out

A fall in individuals' income due to paying cuts or job losses amid the pandemic will lead to a decrease in private consumption, which will lead to a decrease in demands of goods and services, thus leading businesses towards losses and can make them opt out of investing in more. This is what results in the economic disruption. This is a situation voluntarily caused by the public; thus, people cannot be forced to spend more, nor businesses be forced to invest more.

The only way out of this financial crisis is through the government. The government is one of the 4 drivers of the GDP, and if it increases its expenses, the government can bring the economy out of life support. The government can increase its expenditure adequately by measures such as paying off salaries of government employees, construction activities, in a way that the economy can be revived for short to medium term.

The Modi government has also announced various schemes and policies aiming to get the economy back on its feet. Under the 'Atma Nirbhar Bharat' package, the center has announced the PM Garib Kalyan Yojana to provide free food and grains to weak and poor; MGNREGA jobs for migrant workers; relief to MSMEs; and other such landmark reforms in the agricultural sector. Through the 'Aatma Nirbhar Bharat' campaign, the government is also trying to cut off imports and increase exports to the global market.

Even though the government is taking all these measures through various schemes and reforms, it all comes down to how well they are implemented. Global experts have already predicted that India is bound to face an annual GDP decline of around 7% for the full financial year. Hence, it becomes important for the central government to step up its game and fight hard to lessen the overall impacts of this deadly virus.

About the Author: Anuja Khandelwal | 18 Post(s)

Anuja Khandelwal is a finance content writer at Finology. With a bachelor’s degree in Management and a master’s in mass communication and journalism, Anuja started writing blogs as a hobby, which later turned into passion. Together, with her passion for writing and interest in Finance, she wishes to create unique infotainment through her words.

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