5 Key economic trends that will indicate India’s “Return to Normal”

Here are 5 key economic trends or indicators that will signify the bounce-back of the Indian economy.

Oct 28, 2020 08:10 IST India Infoline News Service

The global economic shock that has been caused by the COVID-19 crisis is now comparable to the post-WWII world economy. With the global GDP set to reduce by at least 3.5% in 2020, it comes as no surprise that economically, we are facing the deepest recession of the 21st century.

However, on a positive note, the growth of COVID-19 cases looks to be on the decline around the globe – including in India where all lockdown restrictions are gradually being lifted.

Having said that, which are the 5 key economic trends or indicators that will signify the bounce-back of the Indian economy? Let us look at each of them.

1. Consumer spending

Consumer spending has been a significant driver of the Indian economy for some decades now. Despite the increase in digital payments in the past year, consumer spending has witnessed a sharp decline of 40% - that was crippling to the economy. Other data sources showed a drop of around 31% year-on-year in the first quarter of 2020.

Image source: Economic Times

With all the pent-up demand due to the imposed restriction, the post-lockdown could see consumer spending in daily essentials, beauty, and other FMCG products – returning to the pre-lockdown levels. Other consumer items in areas of personal health, home hygiene, and physical fitness are also expected to show strong growth -particularly in the urban sectors. 

2. Gross domestic product (GDP)

Against a Reuters forecast of an 18.3% contraction, India’s GDP reduced by almost 24% in the period between April to June during the lockdown. While the second quarter (ending in September) showed partial improvement, the GDP is projected to get into positive territory in the final quarter of the 2020-21 financial year.

Image source: Scroll.in

Thanks to the good monsoons, India’s foodgrain production has reached over 300 million tons in 2020, which augurs well for the country’s economy and GDP figures. Add to that, the increase in consumption demand and the return of the manufacturing activities are going to be key drivers for the GDP estimates in 2021.

3. Manufacturing and exports

With a share of almost 20% of the GDP, the manufacturing sector has also been severely hit by the economic lockdown. Probably the industry that has been hit the hardest is the automobile manufacturing industry, which comprises half of the country’s manufacturing output.

Image source: The Financial Express

Among the major economic indicators, manufacturing PMI reached the highest level in September 2020 – in the last eight years. This spells some good news for the future of the Indian manufacturing industry. The 2020 Manufacturing Risk Index that included factors such as operating conditions, cost competitiveness, and risks, ranks India third in the list of global manufacturing countries.

Additionally, with the government’s focus on self-reliance, global exports are another key economic indicator for the coming decade.

4. Rural economy

The rural economy of India has been among the selected bright spots for the economy – even during the lockdown phase. As compared to urban hubs like Delhi, Mumbai, and Chennai, rural areas have not been as severely impacted – and have continued to show strong consumer demand.

Besides consumer activity, the rural economy is largely dependent on agricultural and farm output – that have been positive thanks to the good monsoons. Some of the positive trends in the agricultural sector include an increase in planned land for Kharif cultivation and a reduction in rural unemployment from 70% (in May) to 40% (in July) following the ease in lockdown restrictions.

Image source: CNBC.com

5. Fiscal and monetary policy

The final indicator of India’s “return to normal” would be its fiscal and monetary policy. While the Indian government has not come up with any growth estimate for 2020-21, the RBI has been aiming monetary and liquidity measures to restore market confidence, reduce liquidity stress, and unfreeze credit markets.

Since the beginning of the pandemic, the RBI has lowered policy rates by around 115 bps – combined with strong liquidity measures. The Monetary Policy Committee (MPC) of the RBI has also committed to maintaining the key repo rate at 4% - along with the retail inflation target at 4% (plus-or-minus 2%) to revive growth in the next fiscal year.

Conclusion

Despite all the slump in economic activity, the COVID-19 crisis is also a great opportunity for India to build a self-reliant economy focused on domestic spending and exports. Favorable factors in 2020 like a good monsoon, pent-up consumer demand, and a stable monetary policy are good news for the Indian economy going forward.

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