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Photo: Alamy
Photo: Alamy

India could take longer to recover than global peers

Many countries are witnessing an improvement in their economic conditions over the last few months. However, the Q1 figures have resulted in sharp downward revisions for India. This highlights the possibility of India’s recovery lagging global growth. Mint explores

Many countries are witnessing an improvement in their economic conditions over the last few months. However, the Q1 figures have resulted in sharp downward revisions for India. This highlights the possibility of India’s recovery lagging global growth. Mint explores.

How are some nations seeing a recovery?

The gradual easing of lockdown restrictions and graded opening up of the economy in several advanced economies has resulted in swifter normalization of activity. One instance is that the weekly unemployment claims for the US have reduced substantially recently as the states allowed economic activity to continue. Aggressive policy support is also responsible for a sharper than anticipated recovery in advanced countries. China has also witnessed a V-shaped recovery post the curbs imposed to contain the spread of the coronavirus and this has raised hopes of similar conditions in other parts of world.

What about India’s high frequency data?

The reason behind economic contraction in different parts of the world had more to do with lockdown and restrictions in the economy than any underlying vulnerabilities. Subsequently, as these restrictions were lifted, there was a swift improvement in economic activity in these countries. This was also observed in the case of India as economic indicators improved in June even as they plateaued in July. However, as many as 12 out of the 16 economic indicators tracked by Mint were in the red in the recent update, indicating that the pace of economic normalization needs a further policy push.

Pandemic woes
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Pandemic woes

Could India’s recovery lag the revival in global growth?

Given that India had imposed the stringiest lockdown in the world to control covid, there is a possibility that India’s recovery could lag global growth. This has more to do with domestic factors. The outbreak hit the Indian economy just as it started to witness the start of a recovery from a growth slowdown originating in 2018. Covid may accentuate this situation.

What about the other emerging markets?

Typically, emerging market (EM) economies experience deeper and steeper recessions than industrial economies, even if they last for the same duration. Also, the recoveries across emerging markets are slower and volatile. Recessions in East Asia particularly are deeper than in Latin America and Europe. The difference, however, is that East Asian economies tend to experience a faster revival. In the context of the present economic contraction, emerging markets could take longer than advanced economies to recover.

Could  revival  lag  in EMs extend India’s crisis?

The prospect of emerging nations lagging industrialized countries in the present crisis is an outcome of volatile capital flows along with deterioration in macro indicators in several of these countries which could, in turn, result in new issues for them. Luckily, India is better placed because of our conservative policymakers. However, prolonged recovery in other EMs could impact India to some extent through export channels. Our pace of recovery will eventually depend on the extent of policy support.

Karan Bhasin is  a  policy  researcher.

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