Yes, as most economists rightly predict, growth in the first quarter ended June of the current fiscal year is likely to see a massive contraction, predictable given the savage lockdown that was initiated to slow down the spread of the covid-19 virus originating in Wuhan, China. Now, several agencies are concluding that the Indian economy is witnessing a rebound. In some sectors, such as two-wheelers, production is exceeding pre-covid levels. But others, such as hospitality, are staring into an abyss.
In a note shared last week with global investors, Rajiv Biswas, Asia Pacific chief economist, IHS Markit, confirmed that a recovery was underway.
“IHS Markit forecast that the Indian economy will rebound as the impact of the pandemic recedes, with improving economic growth momentum in the second half of 2020 and positive GDP (gross domestic product) growth of 6.7% in the 2021-22 financial year," Biswas said.
The big question is what does one make of this. To be sure, things are still some time away from returning to normal. Yet, the gloom and doom mood, the dominant theme for the last few months, seems to be giving way to one of guarded optimism as the country heads into the festive season.
Most interestingly sectors riding on digital transformation seem to be, as of now, replacing the traditional growth drivers along with a buoyant agriculture sector. While overall growth will take a hit and shrink the country’s GDP to 2018 levels, the sectoral mix is likely to witness a reordering by the time the dust settles on the covid-19-induced crisis.
Delivering the keynote address at the seventh annual State Bank of India Banking and Economics Conclave on 11 July, Reserve Bank of India (RBI) governor Shaktikanta Das said as much. Pointing out that the economy was showing signs of getting back to normal, as the restrictions have been gradually wound down, he said: “Possibly in a vastly different post-covid environment reallocation of factors of production within the economy and innovative ways of expanding economic activity could lead to some rebalancing and emergence of new growth drivers."
At the moment it looks like the promising digital transformation story may generate the next key drivers. In the last few weeks the country has notched up about $17 billion in foreign direct investment, or FDI, from key tech majors Facebook, Microsoft and Amazon. And, they are not here for altruism. Their investments are a bellwether for the medium-term growth prospects of the Indian economy. With the China story cooling very fast, India is the next biggest market; these companies cannot afford to miss the bus when millions more join the consumer economy.
There is a reason. Over the last decade, India has put together a potent technology backbone. An information highway as it were, in which it has uniquely identified individuals by linking their Aadhaar (the 12-digit unique identity number), bank accounts and mobile phones. So far, it has been used mostly to transfer benefits such as the LPG subsidy, social security payments, and so on.
Now, this architecture is beginning to be put to other uses. One such instance has been the hugely successful Unified Payments Interface—creating an inter-operable payments platform.
Now, a fresh proposal, again from iSpirit, the Bangaluru-based think tank, is looking to create a platform enabling micro, small and medium enterprises, or MSMEs, to leverage their cash flow data to tap financial institutions for working capital loans (at present lending is based on a company’s balance sheet, which precludes most MSMEs).
At the same time, the rebound of the economy does not mean the government will not have any more heavy lifting to do. Far from it. With the services economy in shreds, much hand-holding is still left to do.
Enough signals are emerging from the government that another stimulus is being considered as the focus on livelihood grows.
Maybe this is exactly why the Union government, despite exhortations from all and sundry, including from some have-been advisors, kept its powder dry.
Anil Padmanabhan is managing editor of Mint and writes every week on the intersection of politics and economics.
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