How Did Covid-19 Affect The Indian Economy?

India suffered greatly during the pandemic’s second wave in spring 2021 which led to its largest GDP drop ever. However, this may not fully reflect the economic struggles of the poorest households. India’s GDP has declined by 24.4% from April to June 2020. 

In the fiscal year 2020/21, it contracted by 7.3%, following declines only in 1958, 1966, 1973, and 1980. This marks India’s worst economic downturn which surpasses global trends along with slight recoveries of 0.5% and 1.6% in the latter half of the year. 

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What do the Main Macroeconomic Indicators Tell Us About India’s Economy During the Pandemic?

During the pandemic, India’s economy faced one of its most severe downturns compared to other countries around the world. In the fiscal year 2020/21, global GDP declined by 3.3% for emerging markets and 2.2% overall. India which had one of the highest growth rates in 2019 saw a stark drop due to Covid-19 which highlight the impact.

Looking at unemployment in 2020, India’s rate of 7.1% was higher than the world average and compared unfavourably with similar economies. These economies managed to keep unemployment lower through supportive labour market policies.

Despite the pandemic’s scale, India allocated relatively fewer funds to social safety measures compared to other nations. This was especially noticeable in healthcare where fiscal measures were less than half those of comparable countries. Furthermore, the Indian government’s budget for 2021 did not increase allocations for these measures when adjusted for inflation which raises concerns.

How Has Covid-19 Changed Income, Consumption, Poverty, and Unemployment in India?

Income and Inequality

While the macroeconomic statistics show India’s overall position, they do not reveal how much households and workers have been affected differently. Inequality in wealth and income has been growing in India. In 2020, the richest 1% owned 42.5% of all wealth, while the poorest 50% had only 2.5%. After the pandemic, poverty in India is expected to have more than doubled and the middle class to have shrunk by a third.

During India’s strict lockdown from April to May 2020, individual incomes dropped by about 40%. The poorest 10% of households lost income equal to three months’ earnings during this period. However, still some people managed to survive because of dear result. 

Consumption Patterns

Data from India’s largest private survey, CMIE’s ‘Consumer Pyramids Household Survey’ (CPHS) reveals that per-person spending dropped more than GDP during the pandemic and did not bounce back to pre-lockdown levels even as social distancing eased. By August 2020, average spending per person was still over 20% lower than the previous year and it remained 15% lower by the end of 2020.

Poverty Data

Official poverty data are not available and CPHS data have limitations. They exclude some people at the extremes of income levels. For instance, while official figures suggest a rural poverty rate of 35% in 2017/18, CPHS estimates it at 25% which indicates that the poorest may not be fully represented in the survey findings.

Despite some concerns about its accuracy, the Consumer Pyramids Household Survey (CPHS) provides valuable insights into how consumption patterns have changed due to the pandemic. It shows the percentage of people with monthly spending below various thresholds including official poverty lines that some critics say are too low.

According to the latest CPHS data, rural poverty rose by 9.3 percentage points and urban poverty by more than 11.7 percentage points from December 2019 to December 2020. Earlier CPHS reports indicate even steeper increases which is rural poverty went up by 14.2 percentage points and urban poverty by 18.1 percentage points.

However, the actual increase in poverty due to COVID-19 is likely higher than what CPHS suggests as other surveys indicate. CPHS data are based on a large sample and provide a detailed look at consumption levels but they may underestimate poverty levels because they exclude some of the poorest individuals.

Unemployment and Job Losses

The pandemic has caused severe economic difficulties, especially for young people who often work informally. India has a large number of young workers and many of them now face a higher risk of long-term unemployment, due to which some started playing online games to earn money like the teer. This situation has negative effects on their future earnings and job prospects. 

A study by the Centre for Economic Performance (CEP) at the London School of Economics examined the extent of ongoing joblessness among young workers in the low-income states of Bihar, Jharkhand, and Uttar Pradesh.

During the first lockdown from April to June 2020, the study randomly surveyed urban workers aged 18 to 40. It found that most of those who had jobs before the pandemic were left without work or any income. By the end of the first lockdown period, 20% of the surveyed workers were unemployed, another 9% had jobs but no hours to work, and a staggering 81% had no work or income at all.

Ten months later in early 2021, the situation had improved but remained challenging. 8% of the sample were still unemployed, 8% had jobs with zero working hours, and 40% had no work or income. The youngest workers in the low-income bracket aged 18 to 25 and earning below the median income before Covid-19 faced an even higher rate of unemployment or lack of income which reached 47%. This highlights the severe impact of the pandemic on this vulnerable group.

Conclusion:

The health crisis also triggered an unprecedented economic downturn with both demand and supply declining simultaneously. The situation worsened because India’s economy had already slowed down for over a decade before the pandemic hit in March 2020. This weakened India’s ability to cope with the crisis. The pandemic caused disruptions across all sectors. Government responses initially focused on supply issues and lacked adequate measures to boost demand and employment.