NEW DELHI – After plunging into one of the worst recessions in any major economy, India is showing signs of a modest recovery.
But this recovery is uneven and the country is still struggling to find ways to sustain growth. Its service sector is vulnerable and the vast informal economy – which employs rural workers, day laborers, rickshaw drivers and many millions of others – also remains weak.
India’s economic output grew 0.4 percent in the third quarter, which ended in December, compared to the previous year, according to economic data released by the Indian government on Friday. The figures show that India has emerged from a recession, generally defined as two consecutive quarters of economic downturn.
The economic recovery is good news for the government of Narendra Modi, the prime minister, and for Indian families who have struggled with the impact of the coronavirus pandemic on the country and the global economy. But that rate is still slow compared to previous years, when the economy grew by 6% or more annually.
Growth had already been stumbling in the two years before the pandemic. The challenge for the government will be to find opportunities for a relatively young and aspiring population.
The incipient recovery was driven by services, agriculture, construction and some manufacturing sectors, economists said. The service sector – especially financial and professional services – has fared much better than expected, said Priyanka Kishore, head of South Asia at Oxford Economics.
“The broadening of the recovery, coupled with the drive for solid growth, creates upside risks for the 2021 growth outlook,” she said. “However, there are reasons for caution in the short term, given the slow start of vaccination, peak cases in some states and the threats of new variants.”
Last spring and summer, India imposed one of the most rigid and longest blockages in the world, allowing only essential services to work. This almost paralyzed the economy and left many people unemployed, mainly workers in the country’s huge informal economy. India’s economy was one of the worst performers among the top countries last year, contracting 24 percent in the first quarter, despite expansive government spending. In the second quarter, it contracted again, by more than 7 percent.
At the moment, however, the pandemic appears to be largely under control and India has emerged from its blockade. New cases of viruses have dropped to about 15,000 a day, compared to nearly 100,000 last fall. Virus deaths have dropped to around 100 a day, compared with more than 1,000 during the worst period of 2020.
But cases are increasing again in some parts of the country, including the financial capital of Mumbai.
In recent weeks, in many Indian cities, life has returned to normal. The restaurants and bars are packed on weekends. Cinemas, swimming pools and gyms have reopened. Street markets are crowded with people shopping for weddings and festivals. And some schools are finally back to school.
India produces millions of doses of coronavirus vaccines every day, and the world’s largest immunization campaign is in full swing, although it is restricted to frontline employees. More than 13 million people received at least one dose of the vaccine. The government announced that, as of March 1, private hospitals will also be allowed to administer the vaccine to anyone over 60 or over 45 with certain medical conditions.
Experts hope that, as vaccination implementation gains pace, it will mitigate the effects of a possible second wave and put the economy back on track.
But the data shows an uneven recovery, with small businesses facing the impact of the crisis.
“Large companies have seen a huge increase in their profits. This appears in the GDP figures. In the two consecutive quarters, listed companies have achieved record unprecedented profits, ”said Mahesh Vyas, chief executive of the Indian Economy Monitoring Center. “They are conquering markets at the expense of small-scale industries. Therefore, small and medium-sized companies cannot survive ”.
But GDP figures do not reflect the effect on the informal economy, said Arun Kumar, an economist at the New Delhi Institute of Social Sciences.
“This figure does not take into account the disorganized sector, and this is the sector that was most affected,” he said. “The organized e-commerce sector is winning at the expense of physical stores.”
The unorganized sector, excluding agriculture, employs almost 50% of the labor force and contributes over 30% of GDP
Several agencies predict that the Indian economy will grow by more than 10% in 2021.
But the Indian government, which foresaw a higher growth rate in the last quarter, now says that the economy will have shrunk 8% in the fiscal year ending in March.
Jeffrey Gettleman contributed reports.