Enonomic Overview

Starting April 2020, in common with most global economies, India witnessed two successive quarters of contraction. GDP declined by 24.4% in the April-June quarter and by 7.3% in the following quarter. The April-June contraction, which was the steepest in Indian history, was a result of a nationwide lockdown necessitated by the pandemic. However, GDP grew by 0.4% during the October-December quarter, reflecting the recovery process. The manufacturing sector, which reported a Mumbai’s revival- Strong fundamentals to aid growth contraction of 1.5% in Q3/2020, rose by 1.6% in Q4/2020. Apart from this, agriculture, forestry, and fishing grew by 3.9% in Q4/2020. Among otherindustries, trade, hotels, transport, communications, and broadcasting-related services recorded a lower QOQ contraction in Q4/2020. Quite significantly, construction showed strong growth of 6.2% in Q4/2020, compared to a contraction of 7.2% in Q3/2020.

This recovery towards the end of 2020 was a promising sign, as it was assumed to signify the end of the pandemic-induced recessionary phase. 2021 started on a positive note on the back of a massive nationwide vaccination programme. However, by the close of the first quarter, a second COVID wave had begun and spread at a much steeper rate than the first wave. This surge has caused tremendous strain on the healthcare infrastructure. 

India’s first wave had peaked after nearly six months of control and preventive measures at about 97,400 daily infections on 17th September 2020. On the other hand, the second wave reported over three times that number in just over a month of build-up. It has strained all sectors of the economy, and the outlook is once again clouded. A host of such factors led Oxford Economics to downgrade its 2021 GDP growth forecast to 10.2% from 11.8% previously. The situation remains dynamic at this stage, as most states continue to prolong lockdowns and other restrictive measures. 

However, to boost vaccination rates, the government is considering approving several international vaccines, has given grants to domestic companies to expand their vaccine production capacities, and has made all adults eligible for vaccines from 1st May 2021. This is arguably the largest vaccination programme in the world. We expect to witness targeted lockdowns and varying degrees of restrictions, instead of a blanket nationwide lockdown during the second and third quarters of 2021. It is widely anticipated that suppressed consumer needs and dormant business plans will help with the recovery and buttress the economy as the impact of the second wave begins to wane at the end of second quarter. It must also be noted that there are expert opinions regarding an impending third wave, but it has not been forecast with any degree of accuracy or certainty.