NEW DELHI – After plunging into one of the worst recessions of any major economy, India is showing signs of a modest comeback.
But this recovery is uneven and the country is still struggling to find ways to support growth. Its service sector is vulnerable, and the large informal economy – which employs farm workers, day laborers, rickshaw drivers and millions more – also remains weak.
India’s economic output rose 0.4% in the third quarter, which ended in December, compared to a year earlier, according to economic data released by the Indian government on Friday. The figures show that India has emerged from a recession, which is generally defined as two consecutive quarters of economic contraction.
The economic recovery is good news for the government of Prime Minister Narendra Modi and for Indian households who have struggled with the impact of the coronavirus pandemic on the country and the global economy. But this rate is still slow compared to previous years, when the economy grew by 6% or more per year.
Growth had already stumbled during the two years before the outbreak of the pandemic. The challenge for the government will be to find opportunities for a relatively young and ambitious population.
The nascent recovery has been led by services, agriculture, construction and some manufacturing sectors, economists said. The services sector – especially financial and professional services – has done much better than expected, said Priyanka Kishore, South Asia manager at Oxford Economics.
“The widening of the recovery, alongside strong 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 start in vaccination, spikes in cases in some states, and threats of new variants.”
Last spring and summer, India imposed one of the toughest and longest lockdowns in the world, allowing only essential services to function. This practically crippled the economy and left many people unemployed, especially workers in the country’s huge informal economy. India’s economy was one of the worst performers among major countries last year, contracting 24% in the first quarter, despite heavy government spending. In the second quarter, it contracted again, by more than 7%.
For now, however, the pandemic appears to be largely under control, and India has emerged from its lockdown. New cases of the virus have fallen to about 15,000 a day, up from nearly 100,000 last fall. Virus deaths have fallen to around 100 per day, from more than 1,000 during the worst time of 2020.
But cases are on the rise again in parts of the country, including the financial capital of Mumbai.
In recent weeks, in many Indian cities, life has returned to normal. Restaurants and bars are crowded on weekends. Cinemas, swimming pools and gymnasiums have reopened. The street markets are packed with people shopping for weddings and festivals. And some schools are finally back in session.
India produces millions of doses of coronavirus vaccine every day, and the world’s largest vaccination campaign is underway, albeit limited to frontline workers. More than 13 million people have received at least one dose of the vaccine. The government has announced that as of March 1, private hospitals will also be allowed to administer the vaccine to anyone over the age of 60 or over 45 with certain medical conditions.
Experts hope that as the vaccine rollout accelerates, it will mitigate the effects of a possible second wave and get the economy back on track.
But the data shows a patchy recovery, with small businesses facing the height of the recession.
“Large companies have seen their profits increase dramatically. It shows up in the GDP figures. In the two consecutive quarters, listed companies have achieved unprecedented record profits, ”said Mahesh Vyas, managing director of the Center for Monitoring of the Indian Economy. “They are taking over the markets to the detriment of small industries. Small and medium-sized businesses are therefore unable to 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 take into account the unorganized sector at all, and it is the sector that has been affected the most,” he said. “The organized e-commerce sector is winning at the expense of physical stores.”
The unorganized non-agriculture sector employs nearly 50 percent of the labor force and contributes over 30 percent of GDP
Various agencies predict that the Indian economy will grow by more than 10% in 2021.
But the Indian government, which forecast a higher growth rate for the last quarter, now says the economy will have shrunk by 8% for the fiscal year ending in March.
Jeffrey Gettleman contribution to reports.