INDIAN ECONOMY

Consumption and investment are the major drivers of any economy. In recent years, India has grown primarily on
the engine of consumption. The other engine — of investment — has been decelerating. Gross domestic product, or
GDP (at constant fiscal 2012 prices) grew at 6.7% CAGR between fiscals 2015 and 2012.From fiscal 2014 to
2017, improvement in GDP growth was on account of improving industrial activity, lower crude oil prices, and
supportive policies. However, demonetization and rollout of the GST put the brakes on growth, on top of
dwindling private investment and slower global growth since fiscal 2017.

   

Real GDP growth in India
160 Next 3 yrs CAGR 8.3% 15.0%
10%
150 7.4% 8.0% 83% 7 oy, 10.0%
55% 6.4% I
120 "
5.0%
0.0%
-5.0%
2 -10.0%

FYy13 Fy14 FY15 FY16 FY17 FY18 FY19 FY20 FY21EFY22P FY24P.
mmm GDP (Rs. Trillion) ———GDP Growth RHS

Source: Central Statistics Office (CSO), International Monetary Fund (IMF), CRISIL Research

During fiscal 2021, the Covid-19 pandemic necessitated a 61-day complete nationwide lockdown followed by an
‘unlock’ phase characterized by intermittent regional lockdowns and curbs. This, coupled with the effects of a
troubled global economy, resulted in the worst ever real GDP contraction on record of 23.9% on-year in the first
quarter.

On the demand side, government spending (on schemes to support rural employment, food security and farm
incomes) helped partially to stem the fall, if it is excluded, GDP contraction in the first quarter would have
amounted to ~30% on-year. On the supply side, agriculture, with contraction in the non-agriculture sector alone
at ~27%. Agriculture remains the bright spot for India. There was bumper production in the rabi crop and kharif
output also promises to be good. Kharif sowing has covered 5% more area than the previous year. The reservoir
position is healthy and this, together with the good groundwater situation, is expected to support the upcoming
rabi season. Significantly, production is estimated to be high, especially in pulses and oilseeds, which have seen
stubbornly high food inflation. This augurs well for inflation control in food items which re-entered double-digit
territory in September.

There are three key learnings from the first quarter data:
e India’s trough is deepest among peers, as it saw one of the largest number of reported cases and also
experienced the most stringent lockdown in the world (see table below):

India’s GDP growth has fared worst among peers in the first quarter of fiscal 2021

South
Africa

GOP(%,y-oy) 239 165 9-114 85 53 3200074

Covid-19 cases

 

Apento Ju India Philippines Brazil Russia Indonesia China

(in lakh period- 57 04 13.4 65 06 09 14
end)
Stringency
Index (average) 86 92 78 80 70 72 83

 

Source: Hale, Thomas, Sam Webster, Anna Petherick, Toby Phillips, and Beatriz Kira (2020). Oxford Covid-19
Government Response Tracker, Blavatnik School of Government, CEIC, CRISIL.

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