Post pandemic bounce back – Is India ready for an economic revival?

What are the key factors that are expected to drive India’s bounce-back in the post-COVID world? Let us take a deeper look.

Oct 07, 2020 08:10 IST India Infoline News Service

Thanks to the COVID-19 pandemic, the world is now seeing a recession that has not been caused by any banking crisis or oil shocks. The World Bank projects that 90% of countries will be facing a recession in 2020. Globally, the GDP figures are set to shrink – including that of India (that has recorded a sharp 23.9% drop in the quarter between April to June).

Image source: BBC

Looking at the negative impact, is it even the right time to be talking about a post-pandemic bounce-back? Economy experts seem to think so. Despite the major contraction this year, Fitch Ratings forecasts a 9.5% growth rate in the next fiscal year.

So, what are the key factors that are expected to drive India’s bounce-back in the post-COVID world? Let us take a deeper look.

1. The de-globalization trend

Since the 1990s, there has been a rapid increase in global trade – or what we call economic globalization. The rise of China as the world’s factory continued to grow during this period. The first real shock to globalization came through the 2008 financial crisis – when the world realized about income inequality. Subsequently, China’s unfair trade practices came to the fore – and initiated the de-globalization trend that has now been further accelerated by the COVID pandemic.

Image source: Bloomberg

As the world is looking to build self-resilience into their manufacturing and supply chains, India is also taking the “atmanirbhar” route that is poised to create a self-reliant India in the post-COVID world.

2. Rural Indian market

With the corona pandemic mostly being an urban India phenomenon, Rural India is now in a better position to make a bounce-back. A relevant example of this indicator has been the increase in sales revenue of FMCG company, Britannia, that has focused mostly in the rural sector.

Image source: Times of India

Apart from the FMCG space, carmakers such as Maruti Suzuki and Mahindra & Mahindra have reported better demand from the rural market – rather than the urban market. What is fueling the rural bounce-back? It has largely been a mix of factors including an increase in household incomes, a good monsoon season, along with the Indian government support – in the form of direct cash transfers under the Jan-Dhan account scheme or larger grain procurement.

3. India’s good monetary policy

According to Fitch Ratings, the various stimulus measures initiated by the Indian government have been a factor in the projected increase of India’s public debt-to-GDP ratio to 84% in 2020-21 – that is double the median rating of 42%. On a positive note, the RBI has also eased its monetary policy by reducing interest rates and increasing liquidity.

Image source: Times of India

While the government has announced stimulus measures that account for 10% of the GDP, the overall fiscal part of the measures is only about 1% of the GDP – much lower than other developing countries. The positives that will work in India’s benefit include its healthy foreign reserves, sustained growth in investment, and a gradual reduction in government debt to the median levels.

4. The technology factor

Valued at over $191 billion in 2020, India’s IT and technology sector is another driving factor that is projected to India’s bounce back after the current crisis. Employing over 4 million people, India’s IT industry has also boosted the growth of its telecommunication sector – with the world’s second-largest base of smartphone users.

Image source: IBEF

The post-COVID world is an opportunity for Indian technology companies to upgrade and develop advanced products in the areas of artificial intelligence, blockchain, and machine learning. India’s technology industry could also power other industry sectors such as pharmaceuticals – particularly in the generic drug market.

5. Demographics

This is another factor that works in favor of India to bounce back in the post-COVID phase. With the median age of Indians just at 28.4 years, India has favorable demographics – that can be more resistant to any such viral outbreaks in the future as well as boost its nominal GDP in the following decade.

Image source: Britannica

As shown in the chart above, India has 63% of its population in the 15-60 working-age group – while less than 10% are in the older age bracket of above 60 years. This is probably one of the reasons why India recorded a lower mortality rate from the corona pandemic – as compared to Western nations.

In addition to its demographics, India ranks third in its purchasing power parity (PPP) – that works positively for market consumption.

Conclusion

With the corona pandemic still going strong, it is hard to predict which economies will ultimately emerge stronger. However, a variety of positive factors like demographics, push towards self-reliance, and the government stimulus package is boding well for the Indian economy.

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