NEW DELHI – After India plunges into one of the worst recessions of any major economy, India is showing signs of a modest return.
But the recovery is uneven, and the country is still struggling to find ways to sustain growth. Its service sector is vulnerable, and the large informal economy, which employs farm workers, day laborers, rickshaw pullers and many millions of others, also remains weak.
India’s economic output increased by 0.4 percent in the third quarter, which ended a year earlier, according to economic data released by the Indian government on Friday. The figures show that India has emerged from a recession, usually defined as two consecutive quarters of economic contraction.
The economic turnaround is good news for the government of Narendra Modi, the prime minister, and for Indian households that have struggled with the impact of the coronavirus pandemic on the country and on the world economy. But the rate is still sluggish compared to previous years, when the economy grew by 6 percent or more annually.
Growth has stumbled two years before the pandemic. The challenge for the government will be to find opportunities for a relatively young and ambitious population.
Economists said the new recovery was driven by services, agriculture, construction and a number of sectors of manufacturing. The services sector – especially financial and professional services – performed much better than expected, said Priyanka Kishore, head of South Asia at Oxford Economics.
“Broadening the recovery, coupled with the solid growth momentum, creates upside risks to the 2021 growth outlook,” she said. “However, there are reasons to be cautious in the short term, given the slow onset of vaccination, increase in cases in some states and the threats of new variants.”
Last spring and summer, India imposed one of the strictest and longest-running exclusions in the world, allowing only essential services to function. It almost brought the economy to a standstill and left many people unemployed, especially workers in the country’s enormous informal economy. The Indian economy was one of the weakest among the major countries last year and shrank by 24 percent in the first quarter, despite extensive government spending. In the second quarter, it shrank again by more than 7 percent.
For the moment, however, the pandemic seems to be largely under control, and India has come out of its closure. New virus cases dropped to about 15,000 a day, compared to nearly 100,000 last fall. Virus deaths dropped to about 100 a day, compared to more than 1,000 during the worst period of 2020.
But in some parts of the country, business is on the rise again, including the financial capital of Mumbai.
In many Indian cities, life has returned to normal over the past few weeks. Restaurants and bars are crowded on weekends. Movie theaters, swimming pools and gyms have reopened. Street markets are full of people buying weddings and parties. And some schools are finally up and running again.
India produces millions of doses of coronavirus vaccines every day, and the world’s largest vaccination campaign is in full swing, although it is limited to frontline workers. More than 13 million people received at least one dose of the vaccine. The government announced that from March 1, private hospitals will also be allowed to administer the vaccine to anyone over the age of 60 or those over the age of 45 with certain medical conditions.
Experts hope it will push the consequences of a possible second wave and get the economy back on track as the vaccination of the vaccine fits.
But the data shows an uneven recovery, with small businesses experiencing the heaviest of the downturn.
“Large companies have seen a large increase in their profits. It appears in the GDP numbers. In the two consecutive quarters, the listed companies achieved unprecedented record profits, ”said Mahesh Vyas, CEO of the Center for Monitoring of the India Economy. ‘They are seizing markets at the expense of small-scale industries. Small and medium-sized companies can therefore not survive. ”
But the GDP figures do not reflect the effect on the informal economy, said Arun Kumar, an economist at the Institute of Social Sciences in New Delhi.
“This data does not include the disorganized sector at all, and it is the sector that has been hit the most,” he said. “The organized sector in e-commerce is at the expense of brick-and-mortar stores.”
The disorganized sector, excluding agriculture, has almost 50 percent of the workforce and contributes more than 30 percent of GDP
Several agencies predict that the Indian economy will grow by more than ten percent by 2021.
But the Indian government, which forecast a higher growth rate for the last quarter, now says the economy will have shrunk by 8 per cent for the financial year ending in March.
Jeffrey Gettleman contribution made.