Economic impact of the COVID-19 pandemic in India

The economic impact of the COVID-19 pandemic in India has been largely disruptive. India’s growth in the fourth quarter of the fiscal year 2020 went down to 3.1% according to the Ministry of Statistics.

The Chief Economic Adviser to the Government of India said that this drop is mainly due to the coronavirus pandemic effect on the Indian economy. Notably, India had also been witnessing a pre-pandemic slowdown, and according to the World Bank, the current pandemic has “magnified pre- existing risks to India’s economic outlook”.

The World Bank and rating agencies had initially revised India’s growth for FY2021 with the lowest figures India has seen in three decades since India’s economic liberalization in the 1990s. However, after the announcement of the economic package in mid-May, India’s GDP estimates were downgraded even more to negative figures, signalling a deep recession. (The ratings of over 30 countries have been downgraded during this period.) On 26 May, CRISIL announced that this will perhaps be India’s worst recession since independence. State Bank of India research estimates a contraction of over 40% in the GDP in Q1. The contraction will not be uniform, rather it will differ according to various parameters such as state and sector. On 1 September 2020, the Ministry of Statistics released the GDP figures for Q1 (April to June) FY21, which showed a contraction of 24% as compared to the same period the year before.

According to Nomura India Business Resumption Index economic activity fell from 82.9 on 22 March to 44.7 on 26 April. By 13 September 2020 economic activity was nearly back to pre-lockdown. Unemployment rose from 6.7% on 15 March to 26% on 19 April and then back down to pre-lockdown levels by mid-June. During the lockdown, an estimated 140 million (140 million) people lost employment while salaries were cut for many others. More than 45% of households across the nation have reported an income drop as compared to the previous year  The Indian economy was expected to lose over ₹32,000 crore (US$4.0 billion) every day during the first 21-days of complete lockdown, which was declared following the coronavirus outbreak. Under complete lockdown, less than a quarter of India’s $2.8 trillion economic movement was functional. Up to 53% of businesses in the country were projected to be significantly affected. Supply chains have been put under stress with the lockdown restrictions in place; initially, there was a lack of clarity in streamlining what an “essential” is and what is not. Those in the informal sectors and daily wage groups have been at the most risk.  A large number of farmers around the country who grow perishables also faced uncertainty.

Major companies in India such as Larsen & Toubro, Bharat Forge, UltraTech Cement, Grasim Industries, Aditya Birla Group, BHEL and Tata Motors temporarily suspended or significantly reduced operations. Young startups have been impacted as funding has fallen. Fast-moving consumer goods companies in the country have significantly reduced operations and are focusing on essentials. Stock markets in India posted their worst losses in history on 23 March 2020. However, on 25 March, one day after a complete 21-day lockdown was announced by the Prime Minister, SENSEX and NIFTY posted their biggest gains in 11 years.

The Government of India announced a variety of measures to tackle the situation, from food security and extra funds for healthcare and for the states, to sector related incentives and tax deadline extensions. On 26 March a number of economic relief measures for the poor were announced totaling over ₹170,000 crore (US$21 billion). The next day the Reserve Bank of India also announced a number of measures which would make available ₹374,000 crore (US$47 billion) to the country’s financial system. The World Bank and Asian Development Bank approved support to India to tackle the coronavirus pandemic.

The different phases of India’s lockdown up to the “first unlock” on 1 June had varying degrees of the opening of the economy. On 17 April, the RBI Governor announced more measures to counter the economic impact of the pandemic including ₹50,000 crore (US$6.3 billion) special finance to NABARD, SIDBI, and NHB. On 18 April, to protect Indian companies during the pandemic, the government changed India’s foreign direct investment policy. The Department of Military Affairs put on hold all capital acquisitions for the beginning of the financial year. The Chief of Defence Staff has announced that India should minimize costly defense imports and give a chance to domestic production; also making sure not to “misrepresent operational requirements”.

On 12 May, the Prime Minister announced an overall economic stimulus package worth ₹20 lakh crore (US$250 billion). Two days later the Cabinet cleared a number of proposals in the economic package including a free food grains package. In December 2020, a Right to Information petition revealed that less than 10% of this stimulus had been actually disbursed. By July 2020, a number of economic indicators showed signs of rebound and recovery. On 12 October and 12 November, the government announced two more economic stimulus package, bringing the total economic stimulus   to   ₹29.87   lakh   crore (US$370 billion). By December 2021, India was back to pre-COVID-19 growth.


Government actions


Globally in a poll by the ‘Edelman Trust Barometer’, out of the 13,200+ people polled, 67% agreed that “The government’s highest priority should be saving as many lives as possible even if it means the economy will recover more slowly”; that is, life should come beforelivelihood. For India, the poll showed a ratio of 64% to 36%, where 64% of the people agreed that saving as many lives as possible was a priority, and 36% agreed that saving jobs and restarting the economy was the priority.

In India the life versus livelihood debate also played out, with the government first announcing that life would be prioritized over livelihood, which later changed to an equal importance being given to life and livelihood. By mid-May the center was keen to resume economic activities, while the Chief Ministers had mixed reactions.

Prime Minister Modi announced the first 21 days of India’s lockdown on 24 March. During this address to the nation he said, “Jaan hai toh jahaan hai” (transl. Only if there is life there will be livelihood). On 11 April, in a meeting with the Chief Minister’s of India, the Prime Minister said “Our mantra earlier was jaan hai toh jahaan hai but now it is jaan bhi jahaan bhi (transl. Both, lives and livelihood matter equally).” On 14 April, another address to the nation was made by Modi in which he extended the lockdown, with adjustments, to 3 May. In the Prime Minister’s fifth meeting with the Chief Ministers on 11 May, the Prime Minister said that Indians must prepare for the post coronavirus pandemic world, just as the world changed after the world wars. During the meeting Modi said “Jan se lekar jag tak” (transl. From an individual to the whole of humanity) would be the new principle and way of life. On 12 May, the Prime Minister addressed the nation saying that the coronavirus pandemic was an opportunity for India to increase self- reliance. He proposed the Atmanirbhar Bharat Abhiyan (Self-reliant India Mission) economic package.


Atmanirbhar Bharat Abhiyan (Economic package)


On 12 May the Prime Minister, in an address to the nation, said that the coronavirus crisis should be seen as an opportunity, laying emphasis on domestic products and “economic self-reliance”, an Atmanirbhar Bharat (transl. Self-reliant India) through a Atmanirbhar Bharat Abhiyan (transl. Self-reliant India Mission). The following day the Finance Minister started laying out the details of the Prime Minister’s vision which would continue into the next few days. The Finance Minister stated that the aim was to “spur growth” and “self- reliance”, adding that, “self-reliant India does not mean cutting off from rest of the world” The law and IT minister, Ravi Shankar Prasad, also said that self-reliance does “not mean isolating away from the world. Foreign direct investment is welcome, technology is welcome self-reliant India. translates to being a bigger and more important part of the global economy.” Shashi Tharoor called the ‘Self-reliant India Mission’ a repackaged version of Make in India.


Economic situation


In India up to 53% of businesses have specified a certain amount of impact of shutdowns caused due to coronavirus on operations, as per a FICCI survey in March. By 24 April the unemployment rate had increased nearly 19% within a month, reaching 26% unemployment across India, according to the ‘Centre for Monitoring Indian Economy’. Around 140,000,000 (140 million) Indians lost employment during the lockdown. More than 45% households across the nation reported an income drop as compared to the previous year. Various business such as hotels and airlines cut salaries and laid off employees. Revenue of transport companies such as Ola Cabs went down nearly 95% in March–April resulting in 1400 layoffs. It was estimated that the loss to the tourism industry will be ₹15,000 crore (US$1.9 billion) for March and April alone. CII, ASSOCHAM and FAITH estimate that a huge chunk of the workforce involved with tourism in the country faces unemployment. Live events industry saw an estimated loss of ₹3,000 crore (US$380 million).

A number of young startups have been impacted as funding has fallen. A DataLabs report shows a 45% decrease in the total growth-stage funding (Series A round) as compared to Q4 2019. According to a KPMG report venture capital in Indian startups has fallen over 50% in Q1 2020 from Q4 2019.

Government revenue has been severely affected with tax collection going down, and as a result the government has been trying to find ways of reducing its own costs. On 10 May 2020, Union Minister Nitin Gadkari said that some states didn’t have enough money to pay salaries in the near future. In April, former Reserve Bank of India chief Raghuram Rajan said that the coronavirus pandemic in India may just be the “greatest emergency since Independence”, while the former Chief Economic Advisor to the Government of India said in April that India should prepare for a negative growth rate in FY21.

The Indian economy was expected to lose over ₹32,000 crore (US$4.0 billion) every day during the first 21 days of the lockdown, according to Acuité Ratings. Barclays said the cost of the first 21 days of shutdown as well as the previous two shorter ones will total to around ₹8.5 lakh crore (US$110 billion). Confederation of Indian Industry (CII) had sought an economic fiscal stimulus package of 1% of India’s GDP amounting to ₹2 lakh crore (US$25 billion). The fiscal package and fiscal policies approach is being compared to what has happened in other countries such as Germany, Brazil and Japan. Jefferies Group said that the government can spend ₹1.3 lakh crore (US$16 billion) to fight the impact of coronavirus. Bloomberg’s economists say at least ₹2.15 lakh crore (US$27 billion) needs to be spent. Former CEA Arvind Subramanian said that India would need a ₹10 trillion (US$130 billion) stimulus to overcome the contraction.


Pre-pandemic slowdown


India had also been witnessing a pre-pandemic slowdown. Even before the pandemic, since FY 2018–19, India’s growth was falling, 8% in Q4 FY18 to 4.5% in Q2 FY20. In January 2020 itself, well before India’s lockdown or reactions to the pandemic, the International Monetary Fund reduced India’s GDP estimates for 2019 and also reduced the 2020 GDP forecast. The 2016 Indian banknote demonetisation and goods and services tax enactment in 2017 led to severe back to back disruptions in the economy. On top of this there had been numerous banking crises such as the Infrastructure Leasing & Financial Services crisis and government scheme failures such as that of ‘Make in India’. There was also a significant “income crunch” for both rural and urban sectors in the year prior to the lockdown.


Ratings and GDP estimates


On 27 March, Moody’s Investors Service (Moody’s) revised its estimate of India’s GDP growth for 2020 from 5.3% to 2.5%. Fitch Ratings revised its estimate for India’s growth to 2%. ‘India Ratings & Research’ also downgraded the FY21 estimate to 3.6%. In April 2020, the World Bank and rating agencies downgraded India’s growth for fiscal year 2021 with the lowest figures India has seen in three decades since India’s economic liberalization in the 1990s. On 12 April 2020, a World Bank report focusing on South Asia said that India’s economy is expected to grow 1.5% to 2.8% for FY21. The World Bank report said that the pandemic has “magnified pre-existing risks to India’s economic outlook”. In mid-April the International Monetary Fund projection for India for the FY21 of 1.9% GDP growth was still the highest among G-20 nations. Confederation of Indian Industry (CII) estimated that India’s GDP for FY21 will be between 0.9% and 1.5%.

On 28 April the former Chief Economic Advisor (CEA) to the Government of India has said that India should prepare for a negative growth rate in FY21. On 22 May the RBI Governor Shaktikanta Das also said India’s GDP growth will remain negative in FY21. Following the announcement of India’s economic package numerous agencies downgraded their GDP predictions for FY21. Ratings agency ICRA downgraded estimates to −5%, Goldman Sachs also predicted the same estimate of −5%. These revised GDP estimates signalled a deep recession. On 26 May, CRISIL made the following statement:


India’s fourth recession since independence, the first since liberalisation and perhaps the worst to date, is here.



State Bank of India research predicts a contraction of over 40% in the GDP in Q1 FY21. For the states, the total loss due to COVID-19 is estimated at 13.5% of the total Gross state domestic product. The Ministry of Statistics released India’s GDP estimates for Q4 FY20 at 3.1% while the overall GDP for FY20 is 4.2%. Krishnamurthy Subramanian, the current CEA, said the GDP growth slowdown to 3.1% in Q4 FY20 is mainly due to the coronavirus pandemic effect on the Indian economy. The CEA pointed out that the ratings of over 30 countries have also been downgraded.

On 1 June, Moody’s downgraded India’s sovereign ratings to its lowest grade. Moody’s clarified that while the rating downgrade was happening amid the coronavirus pandemic, “it was not driven by the impact of the pandemic”, rather because of reasons such as “weak implementation of economic reforms since 2017” and “a significant deterioration in the fiscal position of governments (central and state)”. Moody’s rating is now the same as ratings given by S&P Global Ratings and Fitch Ratings, which also rate India with the lowest investment grade. In July, Jefferies’ reaffirmed a 5% real GDP contraction. Nomura gave the following estimates: -5.6% in Q3CY20, −2.8% in Q4CY20 and −1.4% in Q1-2021.

The contraction that India is expected to see in the FY21 will not be uniform, rather it will differ according to various parameters such as state and sector. Agriculture and government sectors are likely not to see any contraction. On 1 September 2020, the Ministry of Statistics and Programme Implementation released the GDP figures for Q1 FY2021, which showed a contraction of 24%.




Night lights and economic activity are connected. In Delhi, night light radiance fell 37.2% compared to 1–31 March 2019. This was the biggest fall for any metro in India. Bangalore fell 32% while Mumbai dropped by 29%. India’s fuel demand in April 2020 as compared to the previous year fell nearly 46%. Consumption

of fuel was the lowest since 2007. Cooking gas (LPG) sales rose ~12%. An International Energy Agency report in April estimated India’s annual fuel consumption will decline 5.6% in 2020. Diesel demand will drop

~6%. By the first half of June 2020, India’s fuel demand was 80–85% of what it was before the lockdown. However the Indian oil minister said that it would take a much longer time for the growth in

demand to be restored to pre-COVID-19 levels.

Oil prices dropped sharply in 2020 following the COVID-19 pandemic. Demand also fell sharply. By mid- May India had already filled its strategic storage including storing oil on ships across the world. India is now looking at storing oil in other nations including America. India also plans to increase its local strategic storage capacity for oil.




A study during the first two weeks of May month by the Public Health Foundation of India, Harvard T H Chan School of Public Health and the Centre for Sustainable Agriculture found that “10% of farmers could not harvest their crop in the past month and 60% of those who did harvest reported a yield loss” and that a majority of farmers are facing difficulty for the next season. Due to logistical problems following the lockdown tea estates were unable to harvest the first flush. The impact of this on the second flush is not known. The entire Darjeeling tea based tea industry will see significant fall in revenue. Tea exports could see a yearly drop up to 8% as a result. In March 2020, tea exports from India fell 33% in March as compared to March 2019. During the lockdown, food wastage increased due to affected supply chains, affecting small farmers.

From 20 April, under new lockdown guidelines to reopen the economy and relax the lockdown, agricultural businesses such as dairy, tea, coffee, and rubber plantations, as well as associated shops and industries, reopened. By the end of April, ₹17,986 crore (US$2.3 billion) had been transferred to farmers under the PM-KISAN scheme. Odisha passed new laws promoting contract farming.




Major companies in India such as Larsen and Toubro, Bharat Forge, UltraTech Cement, Grasim Industries, the fashion and retail wing of Aditya Birla Group, Tata Motors and Thermax momentarily suspended or significantly reduced operations in a number of manufacturing facilities and factories across the country. iPhone producing companies in India also suspended a majority of operations. Nearly all two-wheeler and four-wheeler companies put a stop to production till further notice. Many companies have decided to remain closed till at least 31 March such as Cummins which has temporarily shut its offices across Maharashtra. Hindustan Unilever, ITC and Dabur India shut manufacturing facilities except for factories producing essentials. Foxconn and Wistron Corp, iPhone producers, suspended production following the 21-day lockdown orders.


Stock markets 


On 23 March 2020, stock markets in India post worst losses in history. SENSEX fell 4000 points (13.15%) and NSE NIFTY fell 1150 points (12.98%). However, on 25 March, one day after a complete 21-day lock- down was announced by the Prime Minister, SENSEX posted its biggest gains in 11 years, adding a value of

₹4.7 lakh crore (US$59 billion) for investors. On 8 April, following positive indication from the Wall Street that the pandemic may have reached its peak in the US, the stock markets in India rose steeply once again. By 29 April, Nifty held the 9500 mark.


Concerns and commentary


There were concerns as to where would the government find the funds to fight coronavirus and keep the economy alive. Experts suggested measures such as looking into NPA norms, tax payments and income support to those in the unorganised sectors. A direct cash transfer scheme for the most vulnerable is also being considered, as has happened in other countries.

On 8 April 2020, the managing director of Bajaj Auto, Rajiv Bajaj, wrote in an opinion piece in the Economic Times that the “lockdown makes India weak rather than stronger in combating the epidemic,” and that the current “arbitrary” lockdown was totally unsustainable and a “recalibration” is needed. Rajiv Bajaj writes that “India may have to sell itself out of the coronavirus crisis”. Post the economic package, Barbara Harriss-White criticised the “shock tactics” of the Modi government during the COVID-19 pandemic, the same “shock tactics” that were seen during demonetization.

The Press Information Bureau brought out a fact check that stories about a financial emergency being imposed in India are fake. A financial emergency has never been imposed in the history of India as yet. Numerous companies are carrying out measures within their companies to ensure that staff anxiety is kept at a minimum. Hero MotoCorp has been conducting video townhall meetings, Tata Group has set up a task force to make remote work more effective and the task force at Siemens also reports on the worldwide situation of the COVID-19 pandemic.


Economic recovery


Recovery shapes


In the beginning of May, Duvvuri Subbarao, a former RBI governor, said that India could look forward to a V-shaped recovery. A V-shaped recovery is the best outcome. Arthur D. Little, an international consulting firm, has suggested that India will most probably see a W-shaped recovery. Mythili Bhusnurmath writes in The Economic Times that U- shaped recovery is the most likely followed by an L- shaped recovery. CRISIL chief economist says if things go well, that if the virus is contained, we can expect a V- recovery, otherwise it will end up as a U-recovery. On 24 July 2020 Ajay Bhushan Pandey, the Finance Secretary of India, said that the “Indian economy could revive sooner than we expect” while Tarun Bajaj, the Economic Affairs Secretary said that he expects a V-shaped recovery. On 24 September 2020, Economic Times reported that while speaking at the ET Global Summit, Kevin Sneader, global managing partner of McKinsey and Co. said that, “many economists have been talking about ‘V’, ‘U’ and ‘K’ shape recoveries ever since the COVID-19 pandemic began. Yet, in all likelihood, there could be an ‘X’ shaped recovery for global economies, including India.”


V- shaped recovery


In the second week of May, companies started preparations for restarting operations. Some companies opened offices with the maximum permitted strength of 33% while others took a more cautious approach of as low as five per cent. The beginning of June saw companies further reopen and making plans to reopen. A study by Elara Securities Inc. found that five Indian states, Kerala, Punjab, Tamil Nadu, Haryana and Karnataka, are contributing 27% to India’s GDP as India emerges from a total lockdown. By mid- June, unemployment levels were back to pre-lockdown levels. Online sales reached pre-COVID-19 level sales by June end. Hindustan Unilever registered pre-COVID-19 levels in sales in late June. On 2 July 2020, The Times of India reported that a number of economic indicators such as the manufacturers Purchasing Managers’ Index, goods movement, GST collections, electricity usage and rail freight transport showed significant improvement as compared to previous months. Localised intermittent shutdowns in July were seen to negatively affect aspects of the country’s economic recovery. On 29 July 2020, the Cabinet of India passed the National Educational Policy 2020 aimed at strengthening the economy. By 13 September 2020, Nomura India’s Business Resumption Index showed that economic activity was nearly back to pre-lockdown levels.

By mid-January 2021 only agriculture, forestry and fishing saw positive growth. Sectors such as manufacturing, real estate, professional services, constructuion, tourism, public utility and defence were still in recession. The economic survey of India for 2021, tabled during the Budget Session of the Parliament on 31 January 2020, stated that “starting July (2020), a resilient V-shaped recovery is underway”. This conclusion was based on indicators such as E-Way Bills, GST revenue statistics, commercial paper, steel demand and recovery in GDP growth. On 26 February 2021, India’s GDP was back to pre- lockdown levels.  Due to low base effect a number of infrastructure sectors such as natural gas and cement saw high double digit growth in March 2021; a number of related sector such as coal were still in recession.  In April the output of the core infrastructure sectors again saw high growth, again a consequence of the low base effect.


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