The countrywide lockdown announced by the prime minister Narendra Modi on 24 March is leading the Indian economy into troubled waters. As thousands of daily-wage labourers across the country stare at an uncertain future—with the lockdown bringing economic activity in India to a near-complete halt—their avenues for fruitful employment and job security look dim.
Not surprisingly, a number of credit rating agencies have cut down their forecasts of India’s gross domestic product, or GDP, growth rate. Moody’s expects India’s GDP growth rate to contract to 2.5 percent in calendar year 2020 compared to their estimated five percent growth rate for calendar year 2019. Another rating agency, Fitch Ratings, has said that for the financial year 2020–21, India is likely to clock a GDP growth rate of two percent, the lowest in the last 30 years. Similarly, Crisil Ratings has slashed India’s GDP growth rate for the financial year 2021 to 3.5 percent from the 5.2 percent expected earlier. According to a forecast by Care Ratings, based on the assumption that 80 percent of all production activity is stopped during the 21-day lockdown period, the economy will lose Rs 35,000 to 40,000 crore on a daily basis, cumulatively taking the total loss to anywhere between 6.3 lakh crore and 7.2 lakh crore.
Fresh investments have also tanked. Figures from the Centre for Monitoring Indian Economy, a business information company, state that compared to the quarter ending December 2019, the total new private and public investments have slumped by 41 percent, to 2.91 lakh crore, in the quarter ending March 2020. The CMIE’s data also indicates that in the same quarter, the total value of stalled investments has reached Rs 13.9 lakh crore, the highest since 1995. Meanwhile, the situation for labourers and workers seems dismal too. According to the CMIE data, unemployment for the month of March 2020 rose to 8.7 percent, the highest recorded unemployment rate in the last 43 months.
In another set of data released this week, the CMIE has calculated the unemployment rate from 22 March to 5 April—the period that witnessed a major impact of the lockdown on the labour force. The data showed that as of 5 April, the unemployment rate had spiked to 23.38 percent from 8.41 percent recorded on 22 March.
To understand the impact of the lockdown on the Indian economy, I spoke to Radhika Pandey, a fellow at the National Institute of Public Finance and Policy, or NIPFP, a research institute under the finance ministry. “The Indian economy was already passing through a period of slowdown,” she said. “With the COVID-19 forcing a complete lockdown, any possibility of a rapid recovery in the near future looks grim.” She added, “The impact of the novel coronavirus which was initially felt as a supply shock due to disruption of imports from China has now extended to a broad-based demand shock due to lockdown and social distancing. Consumption of non-essential items will be adversely impacted in light of the lockdown. The informal sector will be hit and the MSME”—medium and small and micro enterprises—“sector which works on tight margin, will feel the impact of demand destruction.”