India’s economy contracts by record 7.3 percent in FY 2020-21

The Indian economy contracted by 7.3 percent in Financial Year-FY 2020-21, as per official data released by the Statistics Ministry on May 31, 2021, recording its worst recession since independence.

Asia’s third-largest economy was hit hard by the strict national lockdown that was imposed to contain COVID-19, which put millions out of work for months.

There was some sign of revival though with the economy growing by 1.6 percent between January and March 2021, the fourth quarter of the fiscal year 2020-21, after two successive quarters of contraction.

Key Highlights

• In comparison to the previous three months of FY2020-21, India’s annual economic growth rate picked up in January-March 2021. 

• Consumer spending, which is the economy’s main driver, rose 2.7 percent year-on-year in January-March following a revised 2.8 percent fall the previous quarter.

• The annual growth of 6.9 percent in manufacturing and 14.5 percent in construction during the quarter also reflected signs of a recovery.

• Investments also rose by 10.9 percent in comparison to the growth of 2.6 percent the previous quarter. 

• The state spending jumped 28.3 percent after almost no growth in the October-December period.

• While this raised hopes for an early revival of the economy, the deadly second wave of the COVID-19 pandemic hit the country in April 2021, forcing state governments to impose local lockdowns to break the chain of transmission. 

• India had recorded a record-high number of daily infections with the number surpassing even 4 lakh. 

• Though there was no national lockdown, the state governments announced strict state lockdowns or corona curfew in April and few others followed in May. 

• While most states are still under strict lockdowns, few have begun to unlock from June 1st after a major fall was witnessed in the number of new infections. 

• However, economists are increasingly pessimistic about this quarter as the local restrictions heavily hit economic activities such as retail, transport, and construction. 

Likely reasons for slow economic growth 

• The center has been slammed for the slow pace of its vaccination campaign, as India has so far only managed to vaccinate fewer than 4 percent of its 1.38 billion people.

• The Reserve Bank of India stated last week that India’s growth prospects will depend on how fast the country can contain its infection rate. 

• Unemployment has also risen to a near one-year high of 14.7 percent in the second last week of May, as per the Centre for Monitoring Indian Economy, a Mumbai-based private think tank.

• The economic growth prospects will be pulled down further if the predicted third wave hits the country. 

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