The Impact of COVID-19 on the Economic Growth of India

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In this article “The Impact of COVID-19 on the economic growth of India” we will investigate the impact of COVID-19 on economic growth with the help of various high-frequency economic growth indicators. We will also try to understand what are the impressions of this “Humanity’s darkest hour” (IMF,2020). Our center of investigation in this study is whether economic growth severely affected by Covid-19.

Our study will use fluctuation in High-frequency indicators of growth such as Gross Domestic Product (GDP), Money Supply(M3), Index of Industrial Production (IIP), Consumer Confidence Survey, Employment statistics, Power Consumption, Community Mobility to assess this impact. Under this study, we found that due to Coronavirus disruption in our economy our indicators show historic fluctuation in various data below.

Also, the effect of this pandemic is quantitatively severe on the Indian economy and its multifaceted impact is long-lasting on our contemporary and oncoming generation.

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The Impact of COVID-19 on the Economic Growth of India

1. Introduction

The Covid-19 has taken just a few months to sweep the globe. This is a communicable and virus disease caused by a coronavirus and it is very easy to spread. The origination of these types of viral diseases is only because of the imbalance in the biosphere or ecosystem. India has reported its first confirmed case of novel coronavirus on 30 January 2019 in the Thrissur district of Kerala. The patient is a student studying at Wuhan University, China, and had returned to India. Wuhan, The Chinese city where the new coronavirus SARS-CoV-2 was first identified and expand across China and beyond.

Due to this virus, hundreds of millions of people have died. Governments have cracked. Generations will be severely affected. The economy of individual countries and the world have crunched. Here we have enclosed figures to show how pandemics have remade the world.

Figure 1: Death from pandemics, From antiquity to modern era.

The Impact of COVID-19 on the Economic Growth of India
Source: Washington Post

Figure 2: COVID-19 India: Timeline of government action before lockdown

The Impact of COVID-19 on the Economic Growth of India
Source: The centre for disease dynamics, economics and policy
The Impact of COVID-19 on the Economic Growth of India

The economic and financial impact of COVID-19 has also been felt in India and globally. The impact of coronavirus has been severe and global leaders are joining forces in an attempt to slow the pace of recession and determine the most effective response to this unprecedented crisis (Paul Krugman, ADIPEC virtual 2020). This pandemic has led to a dramatic loss of human life worldwide and presents an unprecedented challenge to public health, food systems, and the world of work (Joint Statement of ILO, FAO, IFAD, WHO on 13 Oct. 2020). The economic and social disruption caused by the pandemic is devastating: tens of millions of people are at risk of falling into extreme poverty, Millions of enterprises face an existential threat. Nearly half of the world’s 3.3 billion global workforces are at risk of losing their livelihoods. Economists believe the decline will likely exceed the trade slump brought on by the global financial crisis of 2008-09 (WTO).

2. Empirical observation of high-frequency indicator of Economic Growth

1.1   Gross Domestic Product (GDP)

In this section, we will witness what is the impact of COVID-19 on the GDP of India with help of charts and tables. In the course of our study, we found the first-quarter GDP at a constant price of 2020-21 contracts 23.9 %. The influence behind contraction was a huge impact of COVID-19 and its restrictions measures on key indicators of GDP such as Passengers handled at airport contracts 94.1 %, Commercial vehicles sales contracts 84.8 %, Consumption of steel contracts 56.8 %, Production of cement contracts 38.3 %, Cargo handling at airport contracts 57.2 %, Passenger kilometers (Railway) contracts 99.5 %, Manufacturing contracts 40.7 %, Construction contracts 50.3 %. Performance of key sectors like transport including Railways, Road, Air and Water Transport, etc. After observing these data, we can easily say that this is a historic contraction in the GDP of the Indian economy after independence.

Figure 3: Real GDP Growth & Inflation Rate, October 2020

Source: IMF DataMapper

Figure 4: India’s GDP since Economic Liberalisation

Source: McKinsey & Indian Express Research Group

Table 3: Percentage change in key indicators

Percentage Change in Key Indicators of GDP
IndicatorsQ1 2019-20Q1 2020-21
Production of Coal2.6-15.0
Production of Cement1.0-38.3
Consumption of Steel5.0-56.8
Total Telephone Subscribers1.5-2.0
Commercial Vehicle Sales-9.5-84.8
Cargo Handled at Major Sea Ports1.7-19.8
Cargo Handled at Airports-6.5-57.2
Passengers Handled at Airports-0.6-94.1
Railways, net tonne kilometres0.7-26.7
Source: Ministry of Statistics and Programme Implementation

2.2   Money Supply/ Money Stock

M3 is a way to measure the money supply in the economy. In India, the M3 money supply rose 6.7% in the first five months of this year 2020 compared with the same period last year,  the highest growth in seven years (RBI). On the other hand, above discussion show that rise in M3 this time is because of lockdown and strict measure taken to control COVID – 19. Lockdown leads people to hold money in their hands instead of banks. The currency with the public has grown by more than 21% since June Another reason for the rising money supply is foreign money continuously keeps coming into India during the pandemic, leading to an increase in demand for rupees against the dollar. Also, RBI has pumped money into the financial system for driven down the interest rates by buying bonds from institutions.

2.3   Index of Industrial Production (IIP)

Industrial growth, based on the Index of Industrial Production contracted sharply by 55.5% in April as a majority of the industrial sector remained closed in wake of nationwide lockdown by the government to contain the spread of the Covid-19 pandemic. We studied data released by the Ministry of statistics and program implementation which is given in below table 4 that shows how the Indian industry is hugely impacted due to Covid-19.

2.4   Consumer Confidence Survey

Consumer sentiment is a closely watched indicator of a household’s current sentiments and future expectations of economic conditions. The Reserve Bank of India has been conducting its consumer confidence surveys since June 2010. Consumer confidence is regarded as a leading indicator of the turning points of the state of an economy (OECD,2019). This survey assesses household’s sentiment about the economy. Under this study we have found consumer perception on the general economic situation, employment scenario and household income plunged deeper into the contraction zone. While expectations on the general economic situation and employment scenario for the year ahead were also pessimistic.

Figure 5: Consumer Confidence Indices

Source: Reserve Bank of India

2.5   Employment Statistics

In an Economy, if young people feel empowered to earn a living through fulfilling work, and their energy, creativity, and talent are nurtured, they can take up their roles as active, engaged citizens, contributing to a positive cycle of economic growth. We will assess the impact of the crisis on youth in the first and second quarters of 2020 and estimate employment losses for 2020. As many as 41 lakh youths in India lost jobs due to the Covid-19 pandemic with most job losses in the construction and farm sector. This Crisis has severely impacted working hours, reduced earnings, the job of paid and self-employed workers.

Table 6: Urban and Rural Unemployment Rate

MonthUnemployment Rate (%)
 IndiaUrbanRural
January 20207.229.706.06
February 20207.768.657.34
March 20208.759.418.44
April 202023.5224.9522.89
May 202021.7323.1421.11
June 202010.1811.689.49
July 20207.409.376.51
August 20208.359.837.65
September 20206.688.455.88
October 20207.027.186.95
November 20206.507.076.24
December 20209.068.849.15
Source: Centre for Monitoring Indian Economy

2.6   Power Consumption

Power consumption shows signs of rising economic activity. In India, power consumption started declining from March onward due to less economic activity in the country. The Covid-19 pandemic affected power consumption for six months in a row – from March to August 2020. Also, Peak power demand met had recorded negative growth from April to August this year due to this pandemic situation.

Table 7: Decline in Power Consumption

Year-on-Year Basis Decline (2020)
MarchAprilMayJuneJulyAugust
8.7%23.2%14.9%10.9%3.7 %1.7%
Source: Ministry of Power

Table 8: Decline in Peak Power Demand Met

Year-on-Year Basis Decline (2020)
MarchAprilMayJuneJulyAugust
0.8%24.9%8.9%9.6%2.7 %5.6%
Source: Ministry of Power

2.9   Community Mobility

Google publishes the Covid-19 Google Community Mobility Report based on data from users who have opted into location history for their google account so that the data represents a sample of users. In this report, this sample may or may not represent the exact behavior of a wider population. This report shows movement trends by region, across different categories of places such as retail and recreation, groceries and pharmacies, parks, transit

stations, workplaces, and residential. In our study behave examined the unique relationship between mobility and the Covid-19 situation. The movement of people in categories of grocery and pharmacy were increased heavily from baseline during lockdown but in other groups, the movement was reduced to the baseline as shown in the below figure.

Figure 6: Covid-19 Google Community Mobility Report

Source: Data Studio, Google

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Source: Data Studio, Google

Conclusion

The purpose of this study was to assess the impact of Covid-19 on the Economic Growth of India. We have used high-frequency growth indicators such as Gross Domestic Product (GDP), Money Supply(M3), Index of Industrial Production (IIP), Consumer Confidence Survey, Employment statistics, Power Consumption, Community Mobility to assess this impact of Covid-19. Our first Indicator suggests that the economy of India had grown at 4.2% in 2019-20 and our data also shows India entered a recessionary phase with two successive quarters of sharp contraction triggered by national lockdowns of the COVID-19 beginning 25th March 2020. Following a 23.9% collapse in the economy between April to June 2020 period, the GDP fell by 7.5% in the second quarter – leading to a real GDP contraction of 15.7% in the first half of 2020-21. Our study found the growth is affected by the sharpest decline in Trade, Hotels, Transport, Communication, and Services related to broadcasting, followed by Construction, Mining and quarrying, and Manufacturing as well as Commercial Vehicle Sales. Second Indicators of Growth found, Money supply (M3) has increased, but this increased amount of M3 (6.7%) in the first five months of 2020 in the economy does not indicate growth due to fear of Coronavirus pandemic. The public started to hold the money instead of using it for economic growth. The third growth of indicators, the Index of Industrial Production (IIP) found the sharpest decline of 55.5% in April due to nationwide lockdown. Fourth Indicators of growth, Consumer Confidence Survey shows negative sentiment in the general economic situation, employment scenario, and household income. The fifth indicator of growth, Employment statistics found an increase in unemployment due to the coronavirus pandemic in March (23.52%) and April (21.73%) month of the year 2020. The sixth indicator of growth, Power Consumption, shows a decline in consumption for six months of 2020 started from March. The seventh and last indicator of growth, Community Mobility, shows a huge decline in the movement of people at various locations which leads to less economic activity.

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