Why is India facing an Economic Crisis (2020)?

The continuing Coronavirus pandemic has proven to be a double threat for countries across the world, leading to an economic crisis along with health crisis. India is facing one of the worst economic slowdowns in history. The term negative growth, which was a rarity earlier, has become commonplace for every citizen of the country.

In the first quarter (April to June) of the financial year 2020-2021, India's GDP (Gross Domestic Product) contracted by a staggering 23.9%, which was worse than what was generally expected. This downward turn has led to the revision of the overall GDP for the year 2020-2021. While earlier, IMF and other institutions had predicted a decrease of 4-5% in India's GDP, the figures have now been revised to almost 7-10% contraction.

To put things into perspective, the decrease of 23.9% is the largest drop that the Indian economy has seen in the post-independence era. Thus far, the maximum drop had been 5.2% in 1979-80. In the past 70 years, the Indian economy has experienced a recession very few times in the fiscal years of 1958, 1966, and 1980. The reason for all these slowdowns was primarily the irregular monsoons which affected the agricultural produce and thus, the economy.

Why is the GDP falling?

The all-time high drop in the GDP is a result of the strict lockdown implemented in the country which curtailed economic activities across all sectors and industries. The formal sectors of education, travel and tourism also faced a big hit. The economic fall was further strengthened by unemployment and decreasing income. Millions were pushed into deprivation weakening the economy of the country.

It is not just the pandemic, but the roots of the downfall are submerged in the 2016 demonetization drive, banning the usage of Rs.500 and Rs.1000 notes. Additionally, the GST regime destroyed the local demand and supply chain. The impact has been aggravated by the pandemic, thereby taking away the acclaimed status of the world's fastest-growing economy from the country. The dream of making India a 5 trillion economy by 2025 has been pushed by at least 5 years now. One cannot expect a quick bounce back from this grim situation.

How can the economy be revived?

Recovering from the loss is an arduous haul but not an impossible feat. Amidst this gloomy scenario, the Modi government introduced a series of reforms to bring the economy back on track. The Atma Nirbhar Bharat package constituted of Garib Kalyan Yojna providing food free of cost to the poor and downtrodden. Moreover, the creation of jobs under MGNREGA, providing relief to the MSMEs and reforms in the agriculture sector are some landmark decision taken by the government.

Furthermore, there is a need to promote exports and reduce imports. Higher exports help in generating foreign currency, increasing the domestic demand and thereby, the economy. Focusing on the unorganized sector and empowering them is also an important initiative. The health crisis has brought to light the dire state of the health infrastructure in the country. Health care facilities need to be reviewed and improved in order to tackle any such health problems in the future.

Despite the poor GDP growth figures, the ground reality is not perfectly captured in the numbers. The health crisis has driven several people to the verge of unemployment, poverty and in some cases, death. It is time for the government to realize and understand the repercussions of their decisions and take immediate steps to provide relief to the people to revive the economy.