As India prepares to step out of the Covid-19 lockdown, ongoing debates among experts are focusing on the trajectory of the country’s economic recovery. This year, it is unanimously agreed upon by economists that India’s economy will experience a contraction. However, projections and opinions vary regarding the estimated period and path of this financial bounce-back.
Overview: Economic Predictions
Most forecasts point towards India witnessing its slowest growth since the economic reforms of 1991, with the World Bank’s South Asia Economic Focus report predicting a meager 1.5 to 2.8% growth for the year 2020-21. It is also noted that after experiencing a low this year, India’s economy could potentially begin its recovery in the subsequent financial year (2021-22).
Contrary to this optimistic view, former Chief Statistician of India, Pronab Sen, suggests that India’s economy will continue to contract not only in the financial year 2020-21 but also in 2021-22. If this is correct, India could face its first-ever full-blown depression as an independent nation.
Projected Issues on GDP Recovery
India’s Gross Domestic Product (GDP) is expected to struggle, with forecasts suggesting it may not even return to the 2019-20 level until possibly the year 2023-24. Experts predict that India is likely to witness an ‘elongated U-shape’ recovery due to the pre-existing fragility of the economy before the Covid-19 crisis and the insufficient fiscal stimulus measures implemented by the government.
Economic Recovery: An Uncertain Trajectory
While some economists argue that the shape of India’s economic recovery is currently too difficult to predict, given the abundance of unknown factors, others suggest that barring a second wave of Covid-19, India could expect a somewhat swift normalization from negative growth levels. Predictions suggest a return to the pre-Covid levels of a 5% growth rate and a gradual recovery to 7% by the second half of the 2021-22 fiscal year.
Potential Shapes of Economic Recovery
The potential shapes an economic recovery could take are depicted by alphabetic notations, such as Z, V, U, elongated U, W, and L-shaped recoveries. The differences between these models lie primarily in the time taken for economic activity to return to normal, a factor often determined by the depth of the economic crisis.
Other factors influencing recovery include the pandemic’s impact on jobs and household incomes and the policies taken by the government to facilitate a return to economic growth.
Understanding Different Recovery Shapes
Z-shaped recovery is an optimistic scenario: the economy surges after an economic crash, compensating for lost ground before returning to normal. In this scenario, people’s ability to spend is restricted more than their incomes.
V-shaped recovery is when the economy recoups lost ground quickly, returning to its previous growth trend. Here, jobs and incomes are temporarily affected but not permanently lost.
U-shaped recovery reflects a struggling economy, with a low growth rate for some time before gradually rising to usual levels. This process may result in job loss and reduced savings. If prolonged, it can lead to an “elongated U” shape.
W-shaped recovery is considered dangerous, as growth falls and rises before falling again, forming a ‘W’ chart. This double-dip could be triggered by a second wave of the pandemic.
Finally, an L-shaped recovery means that the economy fails to regain its previous GDP level, indicating a permanent loss to the economy’s productivity.
