The Economic Downfall of India
“We went hungry for days, I had to shunt from place to place after being thrown out by the landlord. Even relatives started showing us the door. I don’t want to be in that situation again”
–Mohammad Chand, a garment factory worker near Delhi but fled to his ancestral village, hundreds of miles away.
India’s economic woes may have only just begun leading to total collapse of Indian economy. According to a report of BBC India’s economy has contracted by 23.9% in the three months to the end of June, making it the worst slump since 1996. A grinding lockdown brought on by the coronavirus pandemic has disrupted business and left millions out of jobs.
Surat is India’s polishing hub, handling 14 out of the 15 rough diamonds mined in the world by producers like De Beers and Alrosa PJSC. Located in Prime Minister Narendra Modi’s home province of Gujarat which has witnessed worst slowdowns in last 40-year in the diamond industry. The economic devastation in Surat (Also the textile Hub of India) and across the country is imperiling many of India’s aspirations. Textile dyeing and processing mills around Surat are facing death from fall in demand and decline in production rate. The Indian economy has shrunk faster than any other major nation and it has been estimated that around 200 million people could slip back into poverty.
India’s National Restaurant Association has predicted that 40% of the country’s restaurants will not survive the pandemic. Hotels and trade saw the sharpest contraction at 47% during the lockdown period, only preceded by construction activity which halved. Barring agriculture, which posted modest growth of 3.4%, everything from mining to manufacturing and electricity to services contracted at alarming levels during this period.
“The engine has been smashed,” said Arundhati Roy, one of India’s preeminent writers. “The ability to survive has been smashed. And the pieces are all up in the air. You don’t know where they are going to fall or how they are going to fall.”
The global image of India as mighty economic power has badly shattered. India represented an alternative to China but its stature in the world is slipping. Last quarter the Indian economy shrank by 24%, while China’s is growing again. Economists say India risks losing its place as the world’s fifth largest economy, behind the U.S., China, Japan and Germany.
“This is probably the worst situation India has been in since independence,” said Jayati Ghosh, a development economist at Jawaharlal Nehru University in New Delhi. “People have no money. Investors aren’t going to invest if there is no market. And the costs have gone up for most production.”
Calls from desperate Indian business owners to open up the economy are getting louder, despite India’s coronavirus tally of 3.6 million cases, with nearly 80,000 new ones being reported every day. One of the most severe lockdowns in the world has done little to curb the spread of the virus in India. At -23.9%, India has become the fastest contracting large economy in the world, according to economist Vivek Kaul. And the likelihood is that this number will be further downward revised, given that the government’s data collection was severely impaired during the lockdown. All of this puts India firmly on the path to the deepest recession in its independent history. The country last contracted by -5.2% in 1979-80. The estimates for a contraction this year range between an optimistic -3% to a more realistic -10%. economists warn that with revenues plunging, tax receipts drying up and a fiscal deficit already expected to shoot up four percentage points above the expected levels, the leeway for India to spend its way out of the crisis remains limited at best.
The experts are of the opinion that India’s job market may recover from the Covid-19 shock—but very slowly. Unemployment is at a four-decade high as tens of millions of Indians lost their jobs instantly. Many worked in factories or on construction sites or in urban homes, but they were migrants from rural India. According to reliable sources around 41 lakh of India’s youth has lost jobs because of the pandemic while employment prospects are shrinking day by day. Quarter by quarter, India’s economic growth rate has been dropping, from 8% in 2016 to 4% right before the pandemic. Four percent would be respectable for a developed country like the U.S. But in India, that level is no match for the millions of young people streaming into the workforce each year, hungry for their first job.
Fearing they would starve to death in city slums, millions poured out of the urban centers and walked, rode bicycles or hitched desperate rides back to their villages, an epic reverse migration from city to countryside that India had never seen. That dragged coronavirus into every corner of this country of 1.3 billion people.
The economy of India is characterised as a developing market economy. It is the world’s fifth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP). From 2003 to 2011, the world’s largest democracy was growing at a phenomenal rate, exceeding 9 percent each year between 2005 and 2008. Even after 2011, it kept up a reasonable rate of growth. However, since 2018, the economy seems to be spinning into a crisis. The sharpness of the decline suggests that something more is going on, and part of the cause lies in ruptures in the normative and institutional foundations of the nation caused by divisive politics.