Echap01 Vol2

State of the Economy 2020-21: 01
A Macro View CHAPTER
“Doing the right things at the right time, is the rope

which binds the wealth, making it boundless.”
– Thirukkural, Chapter 49, Verse 482.
The year 2020 threw at the world a bedlam of novel COVID-19 virus, threatening all that
was taken for granted –mobility, safety, and a normal life itself. This, in turn, posed the most
formidable economic challenge to India and to the world in a century. Bereft of a cure or a
vaccine, public health policy became central to tackling this all-pervasive crisis. The imperative
of flattening the disease curve was entwined with the livelihood cost of an imminent recession,
which emanated from the restrictions in economic activities from the lockdown required to contain
the pandemic. This inherent trade-off led to the policy dilemma of “lives versus livelihoods”.
Governments and central banks across the world deployed a range of policy tools to support their
economies such as lowering key policy rates, quantitative easing measures, loan guarantees,
cash transfers and fiscal stimulus measures. India recognised the disruptive impact of the
pandemic and charted its own unique path amidst dismal projections by several international
institutions of the spread in the country given its huge population, high population density and
an overburdened health infrastructure.
As shown in Chapter 1 of Volume 1, the intense lockdown implemented at the start of the pandemic
– when India had only a 100 confirmed cases – characterized India’s unique response in several
ways. First, the policy response was driven by the findings from both epidemiological and
economic research. Specifically, faced with enormous uncertainty about the potential spread of
the pandemic, the policy implemented the Nobel-prize winning research in Hansen and Sargent
(2001) that recommends a policy focussed on minimising losses in a worst case scenario.
Faced with an unprecedented pandemic, loss of scores of human lives captured this worst case
scenario. Moreover, epidemiological research highlighted the importance of an initial, stringent
lockdown especially in a country where high population density posed difficulties with respect
to social distancing. Therefore, India’s policy humane response that focused on saving human
lives, recognised that the short-term pain of an initial, stringent lockdown would lead to long-
term gains both in the lives saved and in the pace of the economic recovery. The scores of lives
that have been saved and the V-shaped economic recovery that is being witnessed – due to the
causal impact of the initial lockdown – bear testimony to India’s boldness in taking short-term
pain for long-term gain.
Second, India recognised that the pandemic impacts both supply and demand in the economy.
The slew of reforms – again unique amidst all major economies – were implemented to ensure
that the supply-side disruptions, which were inevitable during the lockdown, are minimised in
the medium to long-run. The demand side policy reflected the understanding that aggregate
2 Economic Survey 2020-21 Volume 2
demand, especially that for non-essential items, reflects precautionary motives to save, which
inevitably remains high when overall uncertainty is high. Therefore, during the initial months of
the pandemic when uncertainty was high and lockdowns imposed economic restrictions, India
did not waste precious fiscal resources in trying to pump up discretionary consumption. Instead,
the policy focused on ensuring that all essentials were taken care of, which included direct
benefit transfers to the vulnerable sections and the world’s largest food subsidy programme
targeting 80.96 crore beneficiaries. Government of India also launched Emergency Credit Line
Guarantee Scheme to provide much needed relief to stressed sectors by helping entities sustain
employment and meet liabilities.
During the unlock phase, when uncertainty declined and the precautionary motive to save
subsided, on the one hand, and economic mobility increased, on the other hand, India has ramped
up its fiscal spending. A favorable monetary policy ensured abundant liquidity and immediate
relief to debtors via temporary moratoria, while unclogging monetary policy transmission.
India’s demand-side policy, thus, underscores the idea that pressing on the accelerator while
the brakes are clamped only wastes scarce fuel.
India has been able to avoid the second wave while ably managing to flatten the epidemiological
curve, with its caseload peaking in mid-September. As shown in Chapter 1 of Volume I, the
initial stringent lockdown was critical to saving lives and the V-shaped economic recovery. The
continuous drop in daily cases and fatalities bespeak India’s escape from a Sisyphus fate of back-
and-forth policy responses, enabling continual unlocking of the economy. As anticipated, while the
lockdown resulted in a 23.9 per cent contraction in GDP in Q1, the recovery has been a V-shaped
one as seen in the 7.5 per cent decline in Q2 and the recovery across all key economic indicators.
Starting July, a resilient V-shaped recovery is underway, as demonstrated by the recovery in GDP
growth in Q2 after the sharp decline in Q1, a sustained resurgence in high frequency indicators
such as power demand, E-way bills, GST collection, steel consumption, etc. The reignited inter
and intra state movement and record-high monthly GST collections have marked the unlocking of
industrial and commercial activity. A sharp rise in commercial paper issuances, easing yields, and
sturdy credit growth to MSMEs portend revamped credit flows for enterprises to survive and grow.
Imports contracted more sharply than exports, with Forex reserves rising to cover 18 months of
imports. Inflation, mainly driven by food prices, remained above 6 per cent for much of the year;
the softening in December suggests easing of supply-side constraints.
India’s GDP is estimated to contract by 7.7 per cent in FY2020-21, composed of a sharp 15.7 per
cent decline in first half and a modest 0.1 per cent fall in the second half. Sector-wise, agriculture
has remained the silver lining while contact-based services, manufacturing, construction were
hit hardest, and have been recovering steadily. Government consumption and net exports have
cushioned the growth from diving further down.
The V-shaped economic recovery is supported by the initiation of a mega vaccination drive
with hopes of a robust recovery in the services sector. Together, prospects for robust growth in
consumption and investment have been rekindled with the estimated real GDP growth for FY
2021-22 at 11 per cent. India’s mature policy response to this “once-in-a-century” crisis thus
provides important lessons for democracies to avoid myopic policymaking and demonstrates the
significant benefits of focusing on long-term gains.
1.1 The year 2020 witnessed unrivalled turmoil with the novel COVID-19 virus and the
resultant pandemic emerging as the biggest threat to economic growth in a century. The World
Health Organization (WHO) declared COVID-19 a ‘Public Health Emergency of International
Concern’ (PHEIC) on 30th January, 2020 and advised that all countries should be prepared
for containment, including active surveillance, early detection, isolation and case management,
State of the Economy 2020-21: A Macro View 3
contact tracing, and prevention of onward spread. The exponential rise in the number of daily
cases compelled the WHO to title this outbreak a pandemic on 11th March, 2020 - within a
period of three months of its emergence. The contagion is still spreading with over 10 crore
confirmed cases around the globe and over 2 lakh deaths. The ensuing shock has been extremely
unconventional in terms of its size and uncertainty, with its impact dependent on unpredictable
factors like intensity of lockdowns, extent of supply chain and financial market disruptions
alongside societal response to the associated public health measures. The pandemic has been
unique in its wide-ranging effects on almost every section of the economy and the society.
SPREAD OF THE PANDEMIC

Global Spread
1.2 Since its first outbreak in Wuhan, China, COVID-19 has infected all continents, including
Antarctica (in December, 2020), and more than 220 countries. The health shock, though global,
has transmitted through different trajectories across countries in terms of total infections,
mortalities, and recoveries. In the initial stages of the pandemic, the Advanced Economies (AE)
of North American and West European region were disproportionately impacted with more than
70 per cent of the total cases and total deaths (Figure 1). The pandemic quickly intensified
in number of Emerging Market and Developing Economies (EMDEs) such as Brazil, India,
Mexico, Russia and Turkey– that now constitute around 50 per cent of total cases and total
deaths. In recent months, amidst a repeat wave, AEs—particularly the United States and several
Euro area countries—have accounted for an increasing share of cases; in EMDEs, outbreaks in
the Latin America and the Caribbean, and Europe and Central Asia regions have continued to
grow. It is evident that AEs have been affected harder by the pandemic.
Figure 1: Trend in World-wide Spread of COVID-19
1 (a): Share in Cumulative Confirmed Cases 1 (b): Share in Cumulative Deaths
AE China EMDE(excluding China) AE China EMDE(excluding China)
100%
100%
80%
80%
60% 60%
40% 40%
20% 20%
0% 0%
1/Mar
1/Apr
1/Jan
1/Feb
1/May
1/Jun
1/Jul
1/Aug
1/Sep
1/Oct
1/Nov
1/Dec
1/Mar
1/Apr
1/Jan
1/Feb
1/May
1/Jun
1/Jul
1/Aug
1/Sep
1/Oct
1/Nov
1/Dec
Source: WHO, Survey Calculation
1.3 The spread of the pandemic has been in waves as is evident in Figure 2. AEs were
experiencing their third waves, both in terms of cases and deaths, at the end of the year while
EMDEs (excluding China and India) were facing their second waves. China experienced the
first wave of cases in February, 2020 after which it has been able to control the spread. India
experienced its first wave till September, 2020 after which it has been able to effectively manage
the spread – avoiding the second wave as on date.
Figure 2: COVID -19 Infection Waves

2 (a): Confirmed Cases
120 80
a ve 70
100 W
ir d
Th 60
New cases (Thousands)

New cases (Lakhs)
80
e 50
av
W
60 nd 40
co
First Wave Se
30
40
Second Wave 20
20 First Wave
10
0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
AEs EMDEs (excluding China and India) India China (RHS)
2 (b): Deaths
200 30
180 First Wave
160 25
New deaths (Thousands)
New Deaths (Hundreds)

e
140 av
W 20
First Wave nd
120 co
Se
ve
100 15
Wa
80
i rd
10
60
40 Second Wave Th 5
20
0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
AEs EMDEs (excluding China and India) India China (RHS)
Source: Survey Calculations using data from WHO

Note: data is as on 31st December, 2020
1.4 AEs witnessed higher confirmed cases and deaths on per capita basis too as compared to EMDEs
(Figure 3). The third wave in AEs has proven to be more lethal with fatalities exceeding by 5.3 times
compared to the second wave and surpassing the level during the first wave in December itself.
Figure 3: Per Capita COVID-19 Caseload across Countries
3 (a): Cases per Lakh 3 (b): Deaths per Lakh
Source: Survey Calculations using data from WHO

Note: Data is as on 31st December, 2020
Spread of Pandemic in India

1.5 India imposed a stringent nation-wide lockdown during the initial phase of the
pandemic in March-April, 2020, followed by gradual unlocking and phasing out of the
containment measures. India crossed its peak in mid-September with 11.12 lakh active cases
on 17th September, 2020 and 97,860 daily new cases on 16th September, 2020 (Figure 4 (a)).
Subsequently, new cases have moved down to less than 16,000 cases per day in January,
2021 despite the festive season and onset of the winter season. The confirmed cases in India
have touched more than 1.06 crore, representing around 11 per cent of the world’s total case
load. India’s share in new cases load globally has drastically come down from 31 per cent
in September, 2020 to 4 per cent in December, 2020. The pace of spread has been controlled
with doubling time of cases rising from 12 days in May, 2020 to 249 days in December, 2020
(Figure 4 (b)).
Figure 4: Spread of COVID-19 in India
4 (a): Total Active Cases 4 (b): Doubling Time
12 Active Total Cases 25%
Dec 249
Daily new case growth rate (RHS)
10 Nov 143
20%
Peak in mid- Oct 80
8 September
Active Cases (in Lakh)
Sep 39
15%
Aug 27
6
Jul 20
10%
4 Jun 19
5% May 12
2
Apr 7
0 0% Mar 3
1/Apr
27/Dec
16/May
30/Jun
14/Aug
28/Sep
12/Nov
0 50 100 150 200 250 300

No of Days
Source: Data accessed from https://www.covid19india.org/, Ministry of Health and Family Welfare (MoH&FW)
Note: Doubling rate is defined as ln2/ ln (1 + r), where r is the average of last seven days of growth in cumulative cases.
1.6 The initial spread of pandemic was limited primarily to western and northern zones of
the country, which contributed 42 and 22 per cent respectively (Figure 5 (a)). On the other
hand, a sharp rise in share of Southern zone was witnessed since July, 2020 with the zone
adding more than one-third of the new cases per month on an average. The eastern and
central regions each constituted 10 per cent of the total cases respectively during the year.
All zones, barring northern region, experienced a single wave of infection till December
(Figure 5 (b)). The festive season during October and November led to a second wave of
infections in the northern region. In per capita terms, the southern zone had a maximum
caseload at 1226 cases per lakh followed by western zone at 1124 cases per lakh; the
eastern region had the lowest caseload at 342 cases per lakh as on 31st December, 2020
(Figure 5 (c)).
Figure 5: Trends in Spread of COVID-19 across Regions in India

5 (a): Share in Cumulative Confirmed Cases 5 (b): Infection Waves
100% 10
80% 8
New Cases (Lakh)

60% 6
40% 4
20% 2
-
0%
Apr May Jun Jul Aug Sep Oct Nov Dec May Jun Jul Aug Sep Oct Nov Dec
Northern Central
Central Eastern North Eastern Eastern North Eastern
Northern Southern Western Southern Western
Figure 5 (c): Total Confirmed Cases per Lakh
Source: Data accessed from https://www.Covid19india.org/, MoH&FW

Note: Data is as on 31st December, 2020; the Zones are defined as per the Zonal Councils
1.7 The total death toll in India, as on 31st December, 2020, was 1.48 lakh with more than 50
per cent of the fatalities occurring in western and southern zones of the country. Throughout
the pandemic, Maharashtra has been the worst affected state having highest incidence of
deaths in India (Figure 6 (a)). All zones, except the northern zone, experienced a single wave
in terms of deaths (Figure 6 (b)). The northern region witnessed three death waves, with the
third wave proving to be the most lethal as deaths exceeded 1.7 times more than what it was
during the first wave. In per capita terms, the western zone has been the worst performer with
27 deaths per lakh, followed by northern region at 13 deaths per lakh (Figure 6 (c)). Deaths
per capita have been lower in the eastern and north-eastern zones at 6 and 4 deaths per lakh
respectively.
Figure 6: Trends in COVID-19 Deaths across Regions in India
6 (a): Share in Total Deaths 6 (b): Death Waves
100% 14
12
80%
New Deaths ('000)

10
60% 8
6
40%
4
20% 2
0
0% May Jun Jul Aug Sep Oct Nov Dec
Apr May Jun Jul Aug Sep Oct Nov Dec Northern Central
Central Eastern North Eastern Eastern North Eastern
Northern Southern Western Southern Western
6 (c): Total Deaths per Lakh
Source: Data accessed from https://www.Covid19india.org/, MoH&FW

Note: Data is as on 31st December, 2020
The Zones are defined as per the Zonal Councils
Ramping up Testing
1.8 As the first step towards timely identification, prompt isolation & treatment, testing was
identified as an effective strategy to limit the spread of infection. A characteristic of the pandemic,
which aggravated its virulence, was its probable transmission by asymptomatic people. Large-
scale testing was, therefore, imperative for quick identification of cases, immediate isolation
to prevent spread and timely treatment. It also helped in effective contact tracing and timely
isolation of prospective cases. Testing policy has been continuously evolving since the beginning
of the pandemic with countries rapidly gearing up the testing capacity to curb the pace of spread
(Figure 7).
Figure 7: Ramping up Testing across the World

7 (a): As on 15th February, 2020 7 (b): As on 15th January, 2021
No testing Policy Limited Testing Testing if symptoms Open public testing
Source: WHO
Note: “Open public testing” is aggressive testing; “Testing if symptoms” refers to testing anyone who shows
COVID-19 symptoms; “Limited testing” is when an individual is showing symptoms and meets a laid down
criterion like medical worker, overseas travel etc. “No policy” refers to having no testing policy in place.
1.9 An analysis of tests per lakh and total cases per lakh shows that countries such as United
Kingdom, Argentina, Germany, Colombia, Switzerland, Poland and Peru need to perform more
tests as cases per lakh are on the higher side relative to tests conducted (Figure 8). US is an outlier
as it has both high tests per lakh and high caseload per lakh as on 31st December, 2020. India lies
below the global average of cases, despite being the second worst affected country in the world.
Figure 8: Total Tests vs Confirmed Cases per Lakh
Source: WHO
Note: Data is as on 31st December 2020
1.10 India rapidly ramped up its capacity to rapidly scale-up tests. In January 2020, India had
only one laboratory testing for COVID-19, at the National Institute of Virology, Pune. Today
there are more than 2300 laboratories across the country, performing molecular tests for its
diagnosis - an unparalleled achievement in the history of the Indian health system. India has
shown tremendous progress in conduct of daily tests with a dedicated emphasis on expansion of
testing infrastructure (Figure 9). Keeping the focus on “Test, Track and Treat”, India has tested
nearly 18.5 crore cumulative COVID-19 samples with cumulative test positivity rate at 5.6 per
cent, as on 31st December, 2020.
Figure 9: Ramping up Testing in India
90 84 82 80 80
80
Average daily test per lakh
70
59
60
50
40
28
30
20 16
10
0
Jun Jul Aug Sep Oct Nov Dec
Source: MoH&FW
1.11 The unprecedented pace of transmission and lethality of COVID-19 triggered a global
health crisis that has led to an enormous human toll of over 10 crore confirmed cases and
over 21 lakh fatalities. Given the unavailability of a potent cure and a preventive vaccine, it
was imperative that the spread be contained by implementing various public health measures.
However, this presented crucial policy dilemmas before governments across the globe.
POLICY DILEMMAS UNDERLYING COVID-19

‘Lives Vs Livelihoods’
1.12 Given the fast spread of the pandemic, the immediate public health policy priority was,
‘flattening the epidemiological curve’ to mitigate the impact of the spread (refer to Box 1
in Chapter 1, Volume-I, Economic Survey, 2020-21). The steps to “flatten the curve” were
intended to slow the transmission of the virus, push the peak of the curve and spread the
distribution of cases over time. Countries, accordingly, across the globe adopted various
non-pharmaceutical interventions (NPIs) like social distancing measures via work & school
closures, travel bans, cancellations of public events and restrictions of internal movement
and, by social isolation measures via quarantining infected people from the population,
tracing infected persons contacts and enhanced testing. The containment measures allowed
ramping up of the health and testing infrastructure, arresting the spread of the virus and
saving ‘lives’. Chapter 1, Volume I of the Survey delineates that countries that imposed
effective NPIs, especially at the onset of the pandemic, could manage the spread of the
pandemic relatively better.
1.13 Even if no containment measures were implemented, a recession would have been
fuelled by the precautionary and/or panic behaviour of households and firms faced with the
uncertainty of dealing with a pandemic that had no cure. This is because households voluntarily
took precautions which affected demand, especially for non-essential items. The lockdown
reinforced this response to the pandemic. The public health measures, adopted to contain the
spread, engendered sizeable immediate economic costs as they led to almost full suspension
of economic activity, curbed consumption and investment, as well as restricted labor supply
and production. COVID-19, therefore led the world to the predicament of saving ‘lives’ or
‘livelihoods’ as the steps taken to flatten the infection curve, steepened the macroeconomic
recession curve (Figure 10).
Figure 10: Trade-off between Flattening COVID-19 Infection Curve

and Steepening of Recession Curve
Source: Adapted from Gourinchas, P-O (2020)
Demand-side and Supply-side Shocks

1.14 The pandemic has been a unique economic shock that has triggered both supply and
demand side shocks simultaneously across economies around the world (Figure 11). Increased
uncertainty, lower confidence, loss of incomes, weaker growth prospects, fear of contagion,
curtailment of spending options due to closure of all contact-sensitive activities, the triggering
of precautionary savings, risk aversion among businesses and resultant fall in consumption and
investment – leading to the first order demand shock. The supply chain disruptions caused by
closure of economic activity and restricted movement of labour lead to the first order supply
shocks.
Figure 11: Twin Economic Shocks by the Pandemic
Labour
Supply Shock
- Inability to
work from
home in non-
essential Disruption
industries
in Supply
Chain
Linkages
Supply Shock
Source: Adapted from Estupinan, Xavier and Sharma, Mohit and Gupta, Sargam and Birla, Bharti (2020)
1.15 The first order supply side disruptions potentially created second round effects on both
demand and supply. The initial supply shock, resulting in wage and income loss, could impact
aggregate demand and impair productive capacity leading to supply shocks. These effects were
further amplified through international trade and financial linkages, dampening global activity
and pushing commodity prices down. The feedback loops of demand and supply generated
potential hysteresis effects - when households demand less, firms get reduced revenues, which
feeds into reduced activity by firms, and thus reduced household income.
1.16 The policies to ‘flatten the epidemiological curve’, therefore, needed to be accompanied by
economic policies designed and targeted to mitigate the resulting shock to the economic system
and ‘flatten the recession curve’. There was, however, unprecedented uncertainty about the
potential spread of the pandemic. The pandemic, therefore, posed unprecedented dilemmas before
policymakers – lives vs livelihoods and flattening the twin curves of pandemic and the resultant
economic recession.
BOX 1: SECTORAL IMPACT OF COVID-19 IN INDIA:

UBIQUITOUS, YET IRREGULAR
The spread and intensity of COVID-19 induced twin economic shock can be broadly captured
through impact on output/Gross Value Added (GVA) and employment. In terms of GVA shock,
non-essential activities are likely to endure a combined shock directly proportional to their
respective GVA contribution, given that they could not operate during lockdown. Essential
activities are likely to undergo a dampened shock, primarily arising from the indirect impact of
restricted activities in non-essential sectors. In terms of employment shock, contact-sensitive
sectors like trade, hotels, transport, tourism, etc. are likely to undergo a shock proportional to
the respective employment share, with informal workers likely to bear the larger brunt (Figure
B1)1. The construction and mining sectors, that employ a larger share of informal workers,
have been severely affected by the pandemic-induced lockdowns.
1
ercentage distribution of usually working persons in usual status (ps+ss) by broad status in employment for each
P
industry of work.
Figure B1: Sectoral Distribution by GVA Share and Share of Casual Workers
Source: MoSPI, PLFS 2018-19
The impact of the pandemic and associated health measures has been unique as it has affected
every sector of the economy. Agriculture was largely insulated from the lockdown in India
as timely and proactive exemptions from COVID-induced lockdowns to the sector facilitated
uninterrupted harvesting of rabi crops and sowing of kharif crops. However, supply chain
disruptions impacted the flow of agricultural goods leading to high food inflation and adverse
initial impact on some major agricultural exports. The manufacturing sector was hit hard in
the first quarter but has since picked up though mining still remains impacted. Construction
and Services sector were hit the hardest due to the pandemic induced requirements of social
distancing and minimising of personal interaction.
Figure B2: Sectoral Impact of COVID-19 in India
Agriculture and Allied Activities
Agricultural Imports Agricultural Exports
CPI- Food Inflation Components of CPI- Food Inflation
Mining and Quarrying

Mining Activity Mineral Price Inflation
Manufacturing
Textiles and Fabrics Computer Hardware & Peripherals
Profitability Ratios of Consumer Goods

Consumer Goods
Industries
Machinery Sector Pharmaceuticals
Construction
Services
Shipping Freight Rate

Air Turbine Fuel Prices: India
(Baltic Dry Index)
Financial Services Bank Credit Growth (YoY)

Average Net Assets Under Management

Asset Financing Services
(Mutual Funds )
Communications Services Telecom Subscriber Base
Real Estate Services Housing Prices

Aggregate Order Backlog of Industrial &

Industrial and Infrastructure Companies
Infrastructure Construction Companies
Hotels & Tourism, Wholesale & Retail Trading
Source: Compiled from various sources
DISRUPTION OF GLOBAL ECONOMY BY THE PANDEMIC

1.17 As was evident from the earlier section, the pandemic raised unprecedented health challenges
on a global scale and posed unique policy dilemmas. Since 2018, the growth momentum in
global output was on a weakened footing owing to various factors like trade tensions, political
instability, slowed demand and reduction in industrial activity. COVID-19 pandemic accentuated
the deceleration by causing severe demand and supply disruptions. Economic activity has been
belaboured by reduced mobility, owing both to official restrictions and private decisions; uncertainty
regarding the post-pandemic economic prospects and policies has impacted investment; disruptions
in education have decelerated human capital accumulation; concerns about the viability of global
value chains; and the adverse impact on international trade and tourism.
1.18 The month of April 2020 became the month of “Global Lockdown” with world economic
activity coming to a standstill – leading to a steep fall in output during second quarter of 2020.
Global output is expected to witness the sharpest contraction in a century, contracting in the range
of 3.5 - 4.3 per cent in 2020 as per the estimates provided by IMF and World Bank (Figure 12). The
cumulative loss to global GDP over 2020 and 2021 is estimated at around USD 9 trillion – greater
than the economies of Japan and Germany combined. Loss of output is anticipated to be more
severe in AEs at 5.4 per cent compared to EMDEs, excluding China, which stood at 5.0 per cent
for the year 2020 (Figure 12). This is aligned with the more severe impact of the pandemic spread
in AEs than EMDEs as was seen above. The estimates for global growth were revised upward
through the year with easing of lockdowns and resurgence in economic activity in July-September
quarter of the year. The rebound in global activity has, however, been uneven and subdued since
the beginning of second half of the year due to resurgence in COVID-19 infection rates in AEs.
Figure 12: Trend in Global Growth
15
10
Real GDPgrowth rate (in %)
-5
-10
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021F
World AEs Euro area EMDE India
Source: IMF
Note: E is Estimate, F is Forecast
1.19 The pandemic induced border closures and supply disruptions interrupted the international
provision of goods and services. The Global composite Purchasing Managers Index (PMI) was
in contraction for five months before July, 2020 (Figure 13). Global trade is projected to contract
by 9.2 per cent in 2020—comparable to the decline during the 2009 global recession but affecting
a markedly larger share of economies (Figure 14). Trade has, however, played a critical role in
responding to the pandemic, allowing countries to secure access to vital food and medical supplies.
1.20 Most commodity prices rebounded from their mid-2020 lows as strict lockdowns were
gradually lifted and demand firmed, especially from China (Figure 15). The recovery in oil
prices was more modest amid concerns over the pandemic’s lasting impact on oil demand.
Gold emerged as a safe-haven investment in the backdrop of the pandemic prices with prices
increasing by 26.2 per cent in November, 2020 as compared to December, 2019. Food prices
also surged during the year reflecting supply chain disruptions. As a result of weak demand
and subdued energy prices, inflation moderated in most part of the world, deflationary pressure
emerged in major AEs. Fall in inflation in EMDEs was less broad based than in AEs, reflecting
the effects of sharp currency depreciations as well as rising domestic food prices in some
countries (Figure 16).
Figure 13: Global PMI Figure 14: World Merchandise Trade Growth
140 Merchandise Trade Volume

Trend (2011-2018)
120
100
80
60
40
20
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020 E
2021 F
Source: IHS Source: WTO
Note: World Trade in 2015 Indexed at 100
Figure 15: Commodity Prices Figure 16: Inflation Dynamics
Source: IMF Source: WEO October 2020 database, IMF

Note: * Data till November 2020
1.21 Global financial conditions have remained accommodative on the back of continued policy
support via unprecedented swift interventions by Central banks (Figure 17). Despite subdued
activity and a highly uncertain outlook, global equity markets have rebounded at a faster pace
from the March lows, though with notable differentiation across countries, depending on the
spread of the virus, the scope of policy support, and sectoral composition. Behind the broad
rebound of risky assets, there are clear signs of differentiation across sectors. Some sectors
(such as airlines, hotels, energy, and financials) have been more affected by the lockdown
and social distancing, whereas those that are less contact-intensive (information technology,
communications) have fared better. US dollar index has weakened by 7.4 per cent on year-to-
date basis in comparison to most G-10 currencies with countries adopting various policies to
alleviate downward pressure on their exchange rates (Figure 18).
Figure 17: Global Financial Conditions Figure 18: Weakened US Dollar

105
6 United States Euro area GFC COVID-19
China Other EMDEs 100
5
Other AEs
Financial Condition Index
95
4
90
US Dollar Index
3
85
2
80
1
75
0
70
-1
65
-2
60
01/12/2007
01/10/2008
01/08/2009
01/06/2010
01/04/2011
01/02/2012
01/12/2012
01/10/2013
01/08/2014
01/06/2015
01/04/2016
01/02/2017
01/12/2017
01/10/2018
01/08/2019
01/06/2020
Oct/06
Apr/09
Oct/11
Apr/14
Oct/16
Apr/19
Feb/05
Dec/05
Aug/07
Jun/08
Feb/10
Dec/10
Aug/12
Jun/13
Feb/15
Dec/15
Aug/17
Jun/18
Feb/20
Dec/20
Source: IMF Source: Thomson Reuters
Note: Graph depicts Standard Deviation from mean Note: US Dollar Index is a measure of the value of the
of the Index – a lower value indicates accommodative USD against a weighted basket of currencies used by US
stance trade partners
1.22 The pandemic has exacerbated the risks associated with a decade-long wave of global debt
accumulation. Sizeable discretionary support, along with a sharp contraction in output and an
ensuing fall in revenues has led to a surge in government debt and deficits. Debt burdens have
increased as corporates faced a period of sharply reduced sales and sovereigns have financed
large stimulus packages. Debt levels have reached historic highs, making the global economy
particularly vulnerable to financial market stress (Figure 19). General government debt in
major economies rose during Q2 2020 (Figure 20). Debt is likely to rise further as governments
finance the recovery by facilitating the transition of capital, labor, skills, and innovation to a
post-pandemic economic environment.
Figure 19: Government Debt as % of GDP Figure 20: Major Economies - Total Debt as
per cent of GDP
Source: World Bank, Data for 2020 is Estimates Source: OECD

1.23 Going forward, an effective vaccination campaign, restoration of consumer and business
confidence as well as continued monetary and fiscal support are expected to lift the global output
by 4.5 – 5.5 per cent in 2021. Downside risks to this forecast include the possibility of mutant
strains, delays in vaccine procurement and distribution, disruptive effects on potential output
from the pandemic, and financial stress triggered by high debt levels and weak growth.
INDIAN ECONOMY ON THE PATH OF A RESILIENT V-SHAPED

TRAJECTORY
1.24 The Indian economy, after subdued growth in 2019, had begun to regain momentum January
2020 onwards, only to be stalled by the once-in-a-century black swan COVID-19 outbreak. The
economy witnessed a sharp contraction of 23.9 per cent in Q1: FY 2020-21 and 7.5 per cent in
Q2: FY 2020-21 due to the stringent lockdown imposed during March-April, 2020. Since then,
several high frequency indicators have demonstrated a V-shaped recovery. The fundamentals of
the economy remain strong as gradual scaling back of lockdowns along with the astute support
of Atmanirbhar Bharat Mission have placed the economy firmly on the path of revival.
1.25 There has been rapid recovery in India’s economic activity from the COVID-19 pandemic
induced unprecedented lows of the first quarter of FY 2020-21 on the back of extraordinary
fiscal and monetary support provided by the Government and RBI. Overall movement of
high frequency indicators over Q1, Q2 and Q3 indicated speedy pickup in Q2 and growing
convergence to pre-pandemic levels in Q3 (Figure 21). As India’s mobility and pandemic trends
aligned and improved concomitantly, indicators like E-way bills, rail freight, GST collections and
power consumption not only reached pre-pandemic levels but also surpassed previous year levels.
Figure 21: Movement of High Frequency Indicators
Source: Compiled from various sources

Note: Red colour indicates negative YoY and QoQ growth; Brown colour indicates positive YoY or QoQ growth
and Green colour indicates positive YoY and QoQ growth. For indicators like CPI and G-Sec yield decline is
considered as positive, i.e., green and vice versa.
Sectoral Trends
1.26 The year also saw manufacturing sector’s resilience, rural demand cushioning overall
economic activity and structural consumption shifts in booming digital transactions. The
full impact of the pandemic on the Indian economy is still unravelling and the future
growth prospects would critically depend on sustenance of momentum of this recovery.
Agriculture is set to cushion the shock of the COVID-19 pandemic on the Indian economy
in 2020-21 with a growth of 3.4 per cent in both Q1 and Q2. It is the only sector that
has contributed positively to the overall Gross Value Added (GVA) in both Q1 and Q2
2020-21. This indicates that agricultural activities for rabi harvesting and kharif sowing
were largely unaffected by the covid 19-induced lockdown. Given the expectation of
a bountiful kharif harvest, the food grain production target has been set at 301 million
tonnes for the 2020-21 crop year, up by 1.5 per cent from the record output achieved in
2019-20 (Figure 22). Sowing remained healthy while procurement continued unabated,
firming up buffers and channelizing supply, while ensuring food security throughout the
year (Figures 23).
Figure 22: Foodgrain Production in India Figure 23: Procurement of Rice and Wheat
Rice Wheat 51
50
44
38 38 39
40 36
34 34 35
Million Tonnes
31
30 28
23
20
10
0
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Source: Ministry of Agriculture, Department of Food and Public Distribution

Note: Production figures for 2020-21 are estimates. Procurement of Rice is as on 15 January 2021.
The target for procurement of rice for 2020-21 is 495.37 lakh tonnes
1.27 Rural demand has remained resilient empowered by the government’s thrust on the rural
economy and infrastructure in previous years, through a bouquet of reforms for both farm
and non-farm sectors. There has been re-energised focus in the last six years on rural roads
by extension to smaller villages, rural housing and sanitation, provision of basic amenities
under various Government Schemes and creation of durable assets through MGNREGS.
These measures have been reinforced by rural digitalisation and financial inclusion drives
which also aided in smooth implementation of demand push measures during COVID-19.
Initiatives to spur skill development, entrepreneurship, Self Help Groups and livelihoods have
further empowered the rural economy to combat the COVID-19 induced vagaries. Critical
steps such as PM-KISAN, adoption of cost plus 50 per cent formula for MSP, focus on
irrigation via PM Krishi Sinchai Yojana, micro-irrigation scheme, promoting economies of
scale through FPOs, and institutionalizing e-NAM (Electronic national agricultural market),
and promotion of agricultural mechanization through subsidies and custom hiring centres,
have contributed to nourishing a vibrant agricultural sector, which remains a silver lining to
India’s growth story of FY 2020-21.
1.28 A palpable V-shaped recovery in industrial production was observed over the year.
Manufacturing rebounded and industrial value started to normalize. Headwinds, however,
lingered on. The index of eight core industries, which make up around 40 per cent of the index,
registered a growth of (-) 2.6 per cent in November, 2020 as compared to a growth of 0.7
per cent in November, 2019 and (-) 0.9 per cent in October, 2020 (Figure 24). Consequently,
IIP, after registering positive growth in October 2020 slipped back into contractionary zone
in November, 2020 (Figure 25). PMI Manufacturing, however, continued to remain in
expansionary zone in December 2020. Resuscitating steel consumption reinforced acceleration
in construction sector, propping up employment as economy unlocked. The housing market, a
key forward linkage sector for steel consumption, saw gradual resurgence from its Q1: 2020-
21 trough. Electricity sector retained its momentum with power consumption registering
positive YoY growth since September, 2020.
Figure 24: Growth in Core Index Figure 25: Growth in IIP

Coal Crude Oil Mining Manufacturing Electr icity IIP
Natural Gas Petroleum Ref. Products 10
Fertilizers Steel
Cement Electricity 0
Overall Index
10 -10
0 -20
Per cent
-30
Growth (%)
-10
-40
-20
-50
-30 -60
-40 -70
Mar/20
Jul/20
Jan/20
Feb/20
Apr/20
May/20
Jun/20
Aug/20
Sep/20
Oct/20
Nov/20
Jan/20
Feb/20
Mar/20
Apr/20
May/20
Jun/20
Jul/20
Aug/20
Sep/20
Oct/20
Nov/20
Source: MoSPI, DPIIT
1.29 Revitalized inter and intra-state movement along with a sustained spurt in industrial and
commercial activity heralded the economy’s returning to normalcy. E-way bills, electronic
toll collection, rail freight and port cargo traffic not just recovered but surpassed previous year
levels in Q3: 2020-21, while rail passenger earnings and domestic aviation witnessed a steady
recovery (Figures 26 and 27). Indian services sector sustained its recovery from the pandemic
driven declines with PMI Services output and new business rising for the third straight month
in December.
Figure 26: Average Daily ETC Count and Figure 27: E-way Bills
Collection
50
80 50
Collection Count (RHS) 0
70 45
40
60
35 (50)
Per cent
50
Rs Crore
30
Intra State trade
Lakhs
40 25 (100)
20
30 Inter State trade
15
20 (150)
10
10 Total E-Way Bills
5 generated
0 0
(200)
Jan/20
Feb/20
Mar/20
Apr/20
May/20
Jun/20
Jul/20
Aug/20
Sep/20
Oct/20
Nov/20
Dec/20
Jan/20
Feb/20
Mar/20
Apr/20
May/20
Jul/20
Aug/20
Sep/20
Oct/20
Nov/20
Dec/20
Jun/20
Source: Ministry of Road, Transport and Highways; GSTN
BOX 2: E-WAY BILLS

E-way bills are a strong leading indicator of revenue collections, supply chain corrections
and logistics growth. With industries at a standstill during lockdown in the fight against
COVID-19, total e-way bills generated witnessed a sharp contraction of 74 per cent (YoY)
in April 2020. Volume of inter State and intra State trade plunged by 89 per cent and 80 per
cent respectively in April 2020 compared to previous year levels. While E-way bills for all
distance categories contracted sharply in April 2020, E-way bills with distance more than
1000 km saw the maximum fall (Figure B3 ). Value of e-way bills per person saw a similar
fall (Figure B4 ).
Figure B3: Volume of E-Way Bill by Distance Figure B4: All India- Value of Goods Traded
Category (INR Per Person)
Source: GSTN
With gradual relaxation of restrictions, E-way bills in terms of total assessable value generated
and value generated per person regained momentum and persistently improved to surpass
previous year levels in September 2020 (Figure B5). Volume of trade, both inter and intra
also bounced back to previous year levels by September 2020. Both volume and value of total
E-way bills generated have regained stronger momentum in December with a double- digit
growth of 12.3 per cent and 17.5 per cent respectively in December 2020.
Figure B5: All India- Value of Goods Traded Per Person
Source: Data from GSTN curated from public platform Indiapulse@ISB

Persistent improvement in E-way bills generated bodes well for faster economic recovery. A
regression analysis using pair-wise state trade data estimates that inter-state trade had a 36-
39 per cent fall on average during the lockdown and fully recovered in September 2020. The
analysis shows that inter-state borders had some effect on trade, but not very large. Interstate
borders might have been an impediment during the initial phase of lockdown but not in the
later period.
log (trade)ij,t = a + b1 * log(distance) + b2 * D (Border) + b3 * D (COVID)t + eij,t

Log (Pairwise inter-state trade)
(1) (2) (3)

Log (distance) -1.436*** -1.407*** -1.402***
(0.014) (0.016) (0.021)
D(Border) 0.333*** 0.352*** 0.361***

(0.026) (0.029) (0.038)
D(COVID) -0.360*** -0.389***

(0.014) (0.019)
Period Jan 2019-Mar 2020 Nov 2019-Nov Dec 2019- Jun

2020 2020
Observations 13020 12090 7440

R-Squared 0.929 0.916 0.908
D(COVID)=1 for March-August 2020 ***p<0.01
D(Border): Dummy variable which takes the value 1 if the pair of States shares borders
The V-shaped recovery in revenue collections was quite quick in states (Figure B6) such
as Telangana and Andhra Pradesh with value of E-way bills per person reaching previous
year levels in June. On the other hand, states like Haryana and Gujarat witnessed recovery a
month later in July while Maharashtra, a key COVID-19 hotspot and the biggest contributor
to India’s GDP witnessed a recovery August onwards.
Figure B6: State-wise Value of Goods Traded Per Person

1.30 High food prices remained a major driver of inflation in 2020. However, inflation in December,
2020 fell back into the RBI’s target range of 4 +/- 2 per cent to reach 4.6 per cent year-on-year
as compared to 6.9 per cent in November (Figure 28). This was driven by a steep fall in food
prices, particularly of vegetables, cereals, and protein products and favourable base effects. After
consistently rising for six months since Q1:2020-21, headline inflation also eased sequentially in
December. However, fuel inflation remained sticky owing to higher crude oil prices. Core inflation
remained elevated on a yearly basis but eased as compared to the previous month.
Figure 28: Inflation
20% Combined CPI WPI Inflation CPI Food Inflation WPI Food Inflation
15%
10%
5%
0%
-5%
Feb/19
Mar/19
Apr/19
Aug/19
Sep/19
Nov/19
Feb/20
Jan/19
Jun/19
Jul/19
Mar/20
Nov/20
Oct/19
Apr/20
Aug/20
Sep/20
Jan/20
Jun/20
Jul/20
Oct/20
May/19
Dec/19
May/20
Dec/20
Source: MOSPI
1.31 Bank credit remained subdued in FY 2020-21 amid risk aversion and muted credit appetite
(Figure 29). The profile of wholesale bank credit during April-November 2020 reflected this
trend across both public sector and private sector banks. While overall bank credit growth and
credit to commercial sector gradually picked up from its April lows to reach 6.7 per cent and
6.2 per cent YoY respectively as on 1st January, it remained sluggish compared to previous year
levels. Credit growth to agriculture and allied activities accelerated to 7.4 per cent in October
2020 from 7.1 per cent in October 2019. October 2020 saw resilient credit flows to sectors such
as construction, trade and hospitality, while bank credit remained muted to the manufacturing
sector. Credit growth to the services sector accelerated to 9.5 per cent in October 2020 from 6.5
per cent in October 2019. While personal loans registered a decelerated growth of 9.3 per cent
in October 2020 as compared with 17.2 per cent growth a year ago, vehicle loans continued to
perform well, registering accelerated growth of 8.4 per cent in October 2020 vis-a-vis a growth
of 5.0 per cent in October 2019.
Figure 29: Growth in Wholesale Bank Credit
8 Public Sector Banks Private Banks All Scheduled Commercial Banks
6
YoY growth (Per cent)
-2
-4
Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Nov-20*
Source: RBI
Note: * Growth over September 2020
1.32 On the non-bank financing side, assets under management (AUM) of mutual funds grew
at 17.73 per cent during April to November 2020. These funds faced aggressive redemption
pressures during the first quarter of the year amid liquidity crunch in debt markets. However,
RBI’s special liquidity window for mutual funds helped them to tide over this difficult period.
RBI’s liquidity enhancing measures also boosted Commercial Paper (CP) issuances and eased
spreads. In December 2020, CP issuances rose by 55 per cent to reach `1.88 lakh crore as
compared to ` 1.21 lakh crore in November 2020. The effective Weighted Average Yield of
CPs continued to ease to reach 3.6 per cent in December 2020. The mutual fund holdings of
NBFCs, after declining substantially post the IL&FS episode, increased by around 40 per cent
in November 2020 from its March 2020 levels.
1.33 The fiscal arithmetic was impacted by the adverse impact on government revenues and
elevated expenditures, as the Government enhanced spending during the unlock phase. During
April-December 2020 (Flash estimates), total non-debt receipts of Central Government fell by
4.7 per cent YoY. However, gross GST collections (Centre plus states) gained buoyancy October
onwards, crossing the ` 1 lakh crore mark consecutively for 3 months, thereby providing much
needed succour to the Government’s revenue position (Figure 30). However, on the states’
front, total receipts of state governments during April-October 2020, contracted by 13.7 per
cent. Total expenditure of the Central Government recorded a growth of 11 per cent during
April-December 2020 (Flash estimates), with capital expenditure growing by 24.1 per cent
and revenue expenditure by 9.2 per cent year-on-year. States, however, witnessed a contraction
in total expenditure by 4.1 per cent year-on-year during April-October 2020. While revenue
expenditure of states did not see any significant uptick during this period, growth in capital
expenditure of state governments emerged out of eight months of consecutive decline to record
positive growth in October 2020.
Figure 30: Trends in GST Collection during 2020-21

1.4
2020-21 2019-20
1.2 1.14 1.15
1.00 1.00 1.05 1.05
1.02 0.98
1.0 0.95
1.03 1.03
Rs Lakh crore
0.87 0.95
0.8 0.91 0.86 0.92
0.62
0.6
0.4 0.32
0.2
0.0
Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Department of Revenue
1.34 The pandemic led receipts-expenditure wedge witnessed in this year has been bridged
mainly through additional market borrowing, as demonstrated in the revised borrowing calendar
announced by the Centre and higher market borrowing limits given to states. As on 8th January
2021, the Central Government gross market borrowing for FY2020-21 reached ` 10.72 lakh
crore, while State Governments have raised ` 5.71 lakh crore. While Centre’s borrowings are 65
per cent higher than the amount raised in the corresponding period of the previous year, state
governments have seen a step up of 41 per cent (Figure 31). Since the COVID-19 outbreak
depressed growth and revenues, a significant scale up of borrowings amply demonstrates the
government’s commitment to provide sustained fiscal stimulus by maintaining high public
expenditure levels in the economy.
Figure 31: Gross Market Borrowings by States Figure 32: India 10-Year Benchmark
and Centre G-sec Yield
9
Per cent
7
2010-11
17-Apr-19
01-Jul-19
26-Jul-19
09-Oct-19
03-Mar-20
07-Apr-20
21-Jul-20
12-May-19
06-Jun-19
20-Aug-19
14-Sep-19
03-Nov-19
28-Nov-19
23-Dec-19
28-Jan-20
12-May-20
16-Jun-20
25-Aug-20
29-Sep-20
03-Nov-20
08-Dec-20
Source: RBI
1.35 Government and RBI led liquidity support measures, increase in limits of ways and
means advances, and relaxation of rules governing withdrawals from the Consolidated
Sinking Fund (CSF) enabled bond markets to absorb pressures of increased government
borrowings and added to their buoyancy. The surplus systemic liquidity continues to
ensure softening of 10-year G-sec yield and reduction of spread with AAA corporate
bond yields (Figure 32). The average spread of AAA rated 3-year corporate bond fell
from 171 bps in May 2020 to 22 bps in December 2020. The spreads on AA rated
corporate bonds also moderated significantly during the same period i.e., by 131 bps
(from 243 bps to 113 bps) and 60 bps (from 177 bps to 117 bps) each for 3-year and 5-
year bonds respectively.
1.36 The external sector provided an effective cushion to India during these uncertain
times. Amid domestic and global demand and supply disruptions, India’s merchandise
exports fell by 21.1 per cent in the first half of 2020-21 with the contraction being more
severe for imports at 38.8 per cent. Exports, however, revived gradually as the rate of
contraction eased to 5.0 per cent in Q3:2020-21, with non-oil exports increasing by 2.3 per
cent during the quarter. With the gradual unlocking of the economy, the decline in imports
has also moderated to 8.3 per cent during Q3: 2020-21. While trade deficit narrowed to
US$ 26.2 billion in April-September 2020-21 from US$ 88.9 billion a year ago, it stood
at US$ 31.2 billion during the third quarter of the year, lower than US$ 37.0 billion in the
same quarter last year. India recorded a current account surplus of 3.1 per cent of GDP in
the first half of the year largely supported by strong services exports (Figure 33). While
prospects of external demand normalization are underway, its pace is contingent on the
global COVID-19 outlook and successful rollout of vaccinations across the world.
Figure 33: Composition of India’s Current Account Balance
Source: RBI
1.37 India remained a preferred investment destination in FY 2020-21. FDI poured in amidst
global asset shifts towards equities and prospects of quicker recovery in emerging economies.
Subsequent to an unrivalled global portfolio investor selloff in March 2020, surges of FPI
flows were witnessed June onwards marking a renewed appetite for risky assets and yield, and
weakening of US dollar amid global monetary easing and fiscal stimulus packages. Net FPI
inflows recorded an all-time monthly high of US$ 9.8 billion in November 2020. During April-
December 2020, equities witnessed inflow of at USD 30.0 billion, five times its previous year
value - India was the only country among emerging markets to receive equity FII inflows in
2020 (Figure 34). As a result of these inflows, buoyant Sensex and NIFTY resulted in India’s
market-capitalisation to Gross Domestic Product (GDP) ratio crossing 100 per cent for the first
time since October 2010. While stock markets value the potential future growth, these elevated
levels still raise concerns on the disconnect between the financial markets and real sector.
Figure 34: Equity Inflows from FIIs into India in 2020
Source: Institute of International Finance.

1.38 Robust capital inflows along with a weak dollar lent an appreciating bias to the Indian
rupee since end June 2020. However, RBI’s prudent interventions in the foreign exchange
market limited the appreciation (Figure 35). Combined with a rise in gold reserves and foreign
currency assets, India’s foreign exchange reserves climbed to a new high of US$ 586.08 billion
as on 8th January, 2020, covering more than 18 months of imports. External debt as a ratio to
GDP, which is comprised primarily of private sector's external debt, rose marginally to 21.6 per
cent as at end-September 2020 from 20.6 per cent at end-March 2020. However, the ratio of
foreign exchange reserves to total and short-term debt (original and residual) improved because
of the sizable accretion in reserves (Figure 36). Reflecting lower current receipts, debt service
ratio (principal repayment plus interest payment), however, increased to 9.7 per cent as at end-
September 2020 as compared to 6.5 per cent at end-March 2020.
Figure 35: Movements in Rupee Figure 36: External Debt Comfortable
100 0.72 35 12
95 0.7 30 10
90 25
0.68 8
20
Per cent
Per cent
85
6
INR
INR
0.66
15
80
4
0.64 10
75
5 2
70 0.62
0 0
65 0.6
2020 (Sept-end)
2013
2018
2019
2020
Feb/20
Mar/20
Apr/20
Aug/20
Sep/20
Nov/20
Jan/20
Jun/20
Jul/20
Oct/20
May/20
Debt Service Ratio

INR/USD INR/GBP External Debt to GDP
INR/EUR INR/YEN (RHS) Ratio of S hort-term debt to reserves
Source: RBI
1.39 Overall, India is well on its path to a V-shaped recovery to pre-pandemic levels and beyond.
The economy was well supported by strategically paced macro-economic policies and resilient
fundamentals. The coordinated policy response on both health and economic fronts helped India
to endure the pandemic-induced shocks this year.
BOX 3: COVID-19’s Impact on GVA, Labour Markets and Fiscal

Position: A Geographical Perspective
The geographical spread of the COVID-19 health shock is intertwined with the pre-existing
economic fragilities of the states. This fragility can be interpreted on three fronts– relative
sectoral shares in GVA, labour market and fiscal position. The highest output contributing
state and the COVID-19 epicentre of the country i.e., Maharashtra has grappled with contact-
sensitive services sector shock (with 56 per cent of its output coming from that sector) and
labour market stresses given its higher percentage share of MSMEs. While Tamil Nadu and
Kerala are most fragile to the construction sector shock, a manufacturing slowdown lends
risks to Gujarat’s and Jammu and Kashmir’s economic recovery. Punjab, though sheltered by
the relatively resilient agricultural sector, is expected to experience informal labour shocks
in the services sector. Services led informal sector shocks also make states like Delhi and
Telangana vulnerable. However, the comfortable fiscal situation of Delhi, one of the key
COVID-19 hotspots, offers cushion to battle the health shock. The ubiquity of construction
led informal sector shocks impacts Uttar Pradesh, a leading economy and most populous state
of the country.
Table B1: Intensity of Inter-State Variations in Impact of COVID-19

GVA Shock Intensity Employ- Fiscal
(Measured as share in GSVA) ment shock COVID-19
shock Intensity
Intensity
Agricul- Mining Manu- Con- Ser- Informal Share Gross Fis- Con- Deaths
ture factur- struc- vices Workers in Total cal Deficit firmed- (‘000)
ing tion Share in MSMEs as % of Cases
Non-Ag- GDP (Lakhs)
ricultural
Sector*
(%)
FY 2019-20 FY 2018-19 FY 2015- FY 2019-20 Jan Jan

16 (RE)
Andhra Pradesh 30.9 3.5 10.8 8.5 43.5 50.5 5.3 4.2 8.9 7.1
Assam 16.6 14.0 16.3 9.7 41.1 31.1 1.9 3.1 2.2 1.1
Bihar 18.7 0.9 8.7 10.0 60.2 17.0 5.4 9.5 2.6 1.4
Chhattisgarh 16.8 11.7 15.3 10.1 37.0 38.3 1.3 6.4 2.9 3.5
Gujarat 12.6 4.5 38.0 5.6 35.9 42.4 5.2 2.1 2.5 4.4
Haryana 16.6 0.2 23.8 7.7 50.6 46.9 1.5 2.8 2.7 3.0
Himachal Pradesh 12.6 0.4 30.9 8.5 40.5 29.7 0.6 6.4 0.6 1.0
Jammu & Kashmir 15.0 0.2 9.4 8.3 57.1 35.8 1.1 1.2 1.9
Jharkhand 12.6 8.9 22.5 8.8 45.8 38.7 2.5 2.4 1.2 1.0
Karnataka 8.7 0.7 18.7 6.1 64.4 28.0 6.0 2.3 9.3 12.2
Kerala 8.8 0.5 13.2 13.7 62.6 33.4 3.8 3.0 8.4 3.4
Madhya Pradesh 31.8 3.1 11.7 8.6 41.0 45.2 4.2 3.6 2.5 3.7
Maharashtra 9.4 3.7 23.0 5.7 55.9 29.7 7.5 2.1 19.8 50.3
Odisha 14.1 11.8 22.3 7.5 41.1 40.1 3.1 3.4 3.3 2.0
Punjab 24.3 0.4 14.5 6.3 50.7 61.9 2.3 3.0 1.7 5.5
Rajasthan 25.2 9.0 12.2 7.7 44.1 53.7 4.2 3.2 3.1 2.7
Tamil Nadu 10.9 0.5 25.1 11.5 51.1 33.8 7.8 3.0 8.3 12.3
Telangana 12.9 3.1 13.0 4.4 65.3 49.5 4.1 2.3 2.9 1.6
Uttar Pradesh 20.9 1.7 16.4 10.8 48.7 44.4 14.2 2.8 6.0 8.6
Uttarakhand 7.9 1.9 40.3 7.9 38.4 31.1 0.7 2.2 0.9 1.6
West Bengal 19.9 1.2 14.6 8.9 53.3 39.6 14.0 5.6 10.0
Arunachal Pradesh 27.7 3.3 4.1 11.5 44.3 14.3 0.0 4.1 0.2 0.1
GVA Shock Intensity Employ- Fiscal

(Measured as share in GSVA) ment shock COVID-19
shock Intensity
Intensity
Agricul- Mining Manu- Con- Ser- Informal Share Gross Fis- Con- Deaths
ture factur- struc- vices Workers in Total cal Deficit firmed- (‘000)
ing tion Share in MSMEs as % of Cases
Non-Ag- GDP (Lakhs)
ricultural
Sector*
(%)
FY 2019-20 FY 2018-19 FY 2015- FY 2019-20 Jan Jan

16 (RE)
Chandigarh 0.4 0.0 3.6 4.7 87.9 36.9 0.1 0.2 0.3
Delhi 0.4 1.6 5.5 4.6 84.5 52.0 1.5 -0.1 6.3 10.7
Goa 4.5 2.8 50.8 3.2 31.4 16.2 0.1 5.6 0.5 0.8
Manipur 21.2 0.0 2.9 9.1 63.3 7.0 0.3 11.1 0.3 0.4
Meghalaya 15.5 3.6 11.1 7.0 60.7 27.0 0.2 3.6 0.1 0.1
Mizoram 22.8 0.3 0.7 10.3 51.3 2.4 0.1 8.7 0.0 0.0
Nagaland 25.8 0.2 1.7 7.8 61.7 13.9 0.1 4.9 0.1 0.1
Puducherry 4.1 2.3 28.0 16.9 47.2 27.2 0.2 0.8 0.4 0.6
Sikkim 7.7 0.1 46.7 4.2 27.6 23.7 0.0 3.7 0.1 0.1
Tripura 22.1 11.6 4.0 7.6 50.0 14.2 0.3 6.5 0.3 0.4
All-India 14.6 2.7 17.4 7.8 55.2 39.2 100.0 3.2 105.4 152.1
Source: MOSPI, Periodic Labour Force Survey 2018-19, State budget documents, National Sample Survey 73rd round 2015-16
Note: *Informal workers in non-agricultural sector defined as Regular wage / salaried employees in usual status (ps+ss) in
non-agriculture sector without written job contract, not eligible for paid leave, without any social security benefit for each
State/ UT
Wherever data for FY 2019-20 is not available, FY 2018-19 data has been denoted
All figures are in per cent unless specified.
POLICY RESPONSE TO COVID-19

Global
1.40 To help mitigate the spread of the virus, many countries implemented necessary measures.
These have included school closures, restrictions on nonessential business activities, prohibitions
of public gatherings, suspension of public transport, restrictions on movement, border closures,
and travel bans. These social distancing measures with public information campaigns, broad-
based testing, and contact tracing of individuals who were potentially exposed to known cases.
Lockdowns and travel restrictions imposed significant supply-side constraints on national
economies, drastically reducing output and employment in sectors that are usually resistant to
business cycle fluctuations, particularly non-traded services.
1.41 The unrivalled impact of the pandemic on almost every sector of the global economy and
every aspect of society invoked a similar unparalleled policy response. Governments and Central
Banks, the world over, have deployed various measures to stimulate the economy through liquidity
support and regulatory changes. An unprecedented fiscal response at $11.7 trillion globally, or
close to 12 per cent of global GDP (as of September 11, 2020), has provided lifelines to vulnerable
households and firms. These measures include additional spending or forgone revenue, temporary
tax cuts, cash and in-kind transfers, unemployment benefits, wage subsidies, and liquidity support,
including loans, guarantees, and equity injections by the public sector (Figure 37).
Figure 37: Types of Fiscal Support across the Globe
Source: IMF
EMMIEs = Emerging Market and Middle-Income Economies; G20 = Group of Twenty; LIDCs
= Low-Income Developing Countries
1.42 Monetary authorities across the world have eased monetary conditions with broad-based
cuts in short-term policy rates and reserve requirements to support activity and provided
emergency liquidity support to stabilize financial markets (Figure 38). Several central banks
around the world engaged in unconventional monetary policy interventions in the form of
long-term asset purchase programs (for the first time in many EMDEs), relending facilities,
relaxation in asset provisioning requirements and supporting credit provision to a wide range
of borrowers. The corresponding injections of reserve money into the banking system have
been effective in stabilizing bond markets, reducing bond yields, boost equity prices without
putting pressure on exchange rates.
Figure 38: Trend in Global Policy Rates
7 18
AEs EMDEs (RHS)
16
6
14
5
12
4
Per cent
Per cent
10
3 8
6
2
4
1
2
0 0
Nov/2000
Nov/2001
Nov/2002
Nov/2003
Nov/2004
Nov/2005
Nov/2006
Nov/2007
Nov/2008
Nov/2009
Nov/2010
Nov/2011
Nov/2012
Nov/2013
Nov/2014
Nov/2015
Nov/2016
Nov/2017
Nov/2018
Nov/2019
Nov/2020
Source: World Bank

1.43 The deep economic contractions across many countries and heightened uncertainties
about the post pandemic global economic landscape, however, may set back long-term growth
prospects.
India’s Strategic Multi-Pronged Policy Response

1.44 India recognised the disruptive impact of the pandemic and charted its own unique path
amidst dismal projections of the spread in the country given its huge population. It was estimated
that India would have 30 crore cases and several thousand deaths by the end of May, 2020 (Klein
et al., 2020). At a time of rapid change and mounting uncertainty, the clear objective of ‘Jaan
Hai to Jahan hai’ and to ‘break the chain of spread’ helped the government face the dilemma of
‘lives vs livelihood’, pace the sequence of policy interventions and adapt its response as per the
evolving situation. India adopted a graded four-pronged pre-emptive, and pro-active strategy
consisting of (i) containment measures, (ii) calibrated fiscal support focussed on essentials
during lockdown and demand push during the unlock phase, (iii) financial measures and (iv)
structural reforms to combat COVID-19 (also refer to Chapter 1, Volume I, Economic Survey,
2020-21). The policy response was tailored to different phases of the epidemic, adapting to
evolving requirements to provide succour to people, support demand, facilitate the recovery to
pre-pandemic levels and ensure fiscal and debt sustainability. A gradual, smooth transition was
paved from ‘Jaan Hai to Jahan hai’ to ‘Jaan bhi aur Jahan bhi’.
1.45 A nationwide ‘stringent’ lockdown for 21 days was declared on March 24, 2020 and
subsequently extended till May 31, 2020. As per the Oxford Government Response Tracker, India
was among the first ones to impose a stringent lockdown (with index at 100) despite having a
few cases at the time of imposing a lockdown. The lockdown provided the much-needed time to
strengthen the health system response, ramp up testing and ensure public engagement/awareness
towards practice of social distancing. At the beginning of the pandemic, India was almost
totally dependent on imported Ventilators, PPE Kits and N-95 Masks. The Central Government
recognised the challenges posed by the pandemic in the very initial stages and successfully
ensured more than adequate availability and supplies of essential medical items across the
country. A three-tier arrangement of health facilities was created for appropriate management
of COVID-19 cases, (i) COVID Care Center with isolation beds for mild or pre-symptomatic
cases; (ii) Dedicated COVID Health Centre (DCHC) with oxygen supported isolation beds for
moderate cases and (iii) Dedicated COVID Hospital (DCH) with ICU beds for severe cases has
been implemented. As on 29th December 2020 a total of 2,70,710 oxygen supported isolation
beds, 81,113 ICU beds (including 40,627 ventilator beds) and 12,669 quarantine centres with
5,91,496 beds had been created. The textile industry rose to the challenge of the pandemic by
up-scaling the production of PPE kits and N95 masks from scratch to emerge as the second
largest producer of PPE kits and reach a daily production of 32 lakh pieces of N95 masks.
1.46 Government of India and the RBI have undertaken multidimensional efforts to maintain
financial stability and provide necessary regulatory support to ease both demand and supply
constraints posed by the pandemic. The policy support provided helped in cushioning the
expected fall in demand due to the lockdown-induced distress on both individuals and firms.
The fiscal policy response of the Government of India to the pandemic was distinct from other
countries in that the demand stimulus was introduced in a phased manner with prior focus on
measures to provide a cushion for the poor and vulnerable sections of society and to the business
sector (especially the MSMEs). This included one of the world’s largest foodgrains distribution
programme, direct cash transfers to 42 crore individuals, more than 20 crore Women Jan Dhan
accounts, cash support to building and construction workers, `30,000 crore additional emergency
working capital funding for farmers through NABARD, additional pension payments, provision
for free gas cylinders, additional allocation under MGNREGS, as well as government guarantees
for credit, postponement of financial deadlines etc. The pace at which India could intervene
on technology related transfers of financial assistance to the poor and vulnerable during the
pandemic derives its success from the meticulously built social institution of J-A-M (JanDhan,
Aadhar and Mobile). Through the Direct Benefit Transfer system, the country could transfer
money in crores of accounts through a click of button during the pandemic time. Further,
Garib Kalyan Rojgar Abhiyaan (GKRA) was launched on 20th June, 2020 for a period of 125
days in 116 districts of 6 States to boost employment and livelihood opportunities for migrant
workers who had returned to their villages and similarly affected citizens in rural areas due to
COVID-19 pandemic. Government of India also launched Emergency Credit Line Guarantee
Scheme (ECLGS 1.0) to provide much needed relief to stressed sectors by helping entities
sustain employment and meet liabilities. A second version of the Scheme (ECLGS 2.0) was also
launched to offer necessary credit guarantee for loans by banks and NBFCs to identified stressed
sectors.
1.47 RBI undertook several conventional and unconventional liquidity enhancing measures to
manage liquidity situation in the economy. These measures, inter alia, included injection of
durable liquidity of more than `2.7 lakh crore through Open Market Operation (OMO) purchases
between February 6-December 4, 2020, `20,000 crore through two purchase auction OMOs
in State Development Loans (SDLs), `1 lakh crore via Targeted Long Term Repo Operations
(TLTROs) of up to three years’ tenor, `1.25 lakh crore through Long Term Repo Operations
(LTROs) conducted in February-March 2020, reduction in the Cash Reserve Ratio (CRR)
requirement of banks from 4 per cent of net demand and time liabilities (NDTL) to 3 per cent
with effect from March 28, 2020 augmenting primary liquidity in the banking system by about
`1.37 lakh crore, raising banks’ limit for borrowing overnight under the Marginal Standing
Facility (MSF), `50,000 crore Special Liquidity Facility for mutual funds and refinance facility
worth `75,000 crore for all India financial institutions i.e., NABARD, NHB, SIDBI and EXIM
Bank. A key measure taken by RBI and Government of India during H1:2020-21 to ameliorate
the liquidity constraints faced by NBFCs, was to set up a Special Purpose Vehicle (SPV) to
purchase short-term papers from eligible NBFCs/HFCs, which could then utilise the proceeds
to extinguish their existing liabilities.
1.48 To ameliorate corporate stress, Government suspended the initiation of fresh insolvency
proceedings under Section 7, 9 and 10 of Insolvency & Bankruptcy Code 2016 for defaults
arising on or after 25th March 2020 till 25th March 2021. RBI, too, announced loan moratorium
from 1st March 2020 to 31st August 2020 along with an asset classification dispensation and
special resolution framework for COVID-19 related stressed assets. Under the resolution plans
that could be invoked under the above window, lenders were permitted to grant additional
moratorium of up to two years. Also, MSME accounts classified as Standard where the aggregate
exposure of banks and NBFCs was `25 crore or below as on March 1, 2020, were permitted to
be restructured without a downgrade in the asset classification, subject to certain conditions.
1.49 India’s response has been unique in recognising that the pandemic would have long-term
disruptive effects on the productive capacity. The Atmanirbhar Bharat Mission was, accordingly,
a composite package announced with welfare measures to address the short-term distress of
individuals and firms; and structural reforms to alleviate the long-term distress on the economy.
With gradual unlocking of the economy, the focus of the stimulus measures shifted towards
investment boosting and consumption revival measures like Production Linked Incentives,
enhancing capital expenditure and investments in infrastructure sector. The nuanced adaptations
in policy as per the requirements of the pandemic was based on continuous dialogue and
coordination between the Centre, States and Local Governments. The overall policy response,
therefore, is aimed at making the Indian economy more resilient and flexible to deal with the
opportunities and problems of the post-COVID world (Table 1).
Table 1: Policy Package in India to Combat COVID-19

Measures Nature Policy Tools
• School closure
• Complete Nation-wide lock-down for 21
days
• Travel bans/restrictions
• Closure of public places/cancellation of
• Containment and Closure public events
Containment
Policy • Curtailment of non-essential economic
measures
• Transmission prevention activities
• Risk profiling of districts into Red Zones
(hot spots), Orange and Green Zones
• Social distancing norms
• Mandatory use of masks
• Emergency health fund (INR 150 billion)

• Pradhan Mantri Garib Kalyan Yojana -
Financial assistance and food security
• Increment in daily wage under MGNREGS
• Garib Kalyan Rojgar Abhiyaan –
livelihood creation in rural areas
• Health
• Tax & contribution policy changes
• Welfare
Fiscal Policy • Support to States, linking borrowings to
• Tax Measures
Measures Reforms
• Demand push
Aatma Nirbhar Bharat Package 1
• Investment push
• Emergency Credit Line Guarantee
Scheme (ECLGS) for MSMEs
• Subordinate Debt for Stressed MSMEs
and Equity Infusion through Fund of
Funds for MSME

• Extension of Partial Guarantee Scheme to
help NBFCs & MFIs
• Special Credit Facility to Street Vendors
• Liquidity Injection for DISCOMs
• Special liquidity Scheme for NBFC/HFC/
MFIs
• Interest Subvention for MUDRA Shishu
Loans
• Housing Credit Linked subsidy Scheme -
MIG
• Additional Emergency Working Capital
through NABARD
• Additional credit through KCC
• Creation of Agri Infrastructure Fund,
Animal Husbandry Infrastructure
Development Fund
• Promotion of Herbal Cultivation
• Beekeeping Initiative
• Viability Gap Funding Scheme for Social
• Health
Infrastructure projects
• Welfare
Fiscal Policy
• Tax Measures Aatma Nirbhar Bharat Package 2
Measures
• Demand push • Boost Capital Expenditure
• Investment push • LTC voucher Scheme
• Festival Advance
Aatma Nirbhar Bharat Package 3
• Boost for Atma Nirbhar Manufacturing -
Production Linked Incentives
• Boost for Rural Employment
• R&D Grant for COVID Suraksha – Indian
vaccine development
• Atma Nirbhar Bharat Rozgar Yojana
• Industrial Infrastructure, Industrial
Incentives and Domestic Defence
Equipment
• Support for Agriculture – Fertiliser
Subsidy
• Housing for All - PMAY-U
• Boost for Infrastructure-equity infusion in
NIIF Debt PF
• Boost for Project Exports – Support for
EXIM Bank

• Lowering of Repo and reverse repo rate
by 115 and 155 bps respectively.
• Injection of durable liquidity through
Open Market Operation (OMO)
• Targeted Long Term Repo Operations
(TLTROs) of up to three years’
• Reduction in the CRR requirement of
banks
• Policy Rates • Raised bank’s borrowing limit
• Liquidity • Working capital support- term loan
Monetary
• Asset Purchases moratorium, deferment of interest and
measures
• Loan moratorium easing of financing requirements
• Enhanced WMA borrowing limits and
relaxation of CSF withdrawal rules
• Easing of compliance to stressed asset
classify
• Deferment, easing of capital buffer &
liquidity coverage requirements
• Deferring compliance requirements for
FPIs under Voluntary Retention Route
(VRR)
Agriculture
• Farmers’ Produce Trade and Commerce
(Promotion and Facilitation) Act, 2020
• Farmers (Empowerment and Protection)
Agreement of Price Assurance and Farm
Services Act, 2020
• Agriculture
• Essential Commodities (Amendment)
• MSMEs
Act, 2020
• Labour
MSMEs
• Business Process
• New MSME definition covering almost
Outsourcing (BPO)
Structural 99 per cent of all firms enabling MSMEs
• Power
reforms to grow in size and create jobs
• Privatization of PSUs
• Removal of artificial separation between
• Mineral Sector
manufacturing and service MSMEs
• Industry
Labour
• Space
• Enactment of four labour codes namely,
• Defence
Wage Code, Industrial Relations Code,
2020, Code on Occupational Safety,
Health & Working Conditions Code, 2020
& Social Security Code, 2020
• ‘One labour return, one licence and one
registration’

Business Process Outsourcing (BPO)
• Simplification of the Other Service
Provider (OSP) guidelines of the
Department of Telecom. Several
requirements, which prevented companies
from adopting ‘Work from Home’ and
‘Work from Anywhere’ policies have been
removed.
Power
• Tariff Policy Reform: DISCOM
inefficiencies not to burden consumers,
Progressive reduction in cross subsidies,
Time bound grant of open access, etc.
• Privatization of Distribution in UTs
• Agriculture Privatization of PSUs

• MSMEs • PSUs in only strategic sectors
• Labour • Privatization of PSUs in non-strategic
• Business Process sectors
Outsourcing (BPO) Mineral Sector
Structural
• Power • Commercial Mining in Coal Sector
reforms
• Privatization of PSUs • Introduction of a seamless composite
• Mineral Sector exploration-cum-mining-cum-production
• Industry regime.
• Space
Industry
• Defence
• Production Linked Incentive (PLI)
Scheme
Space
• Level-playing field provided to private
companies in satellites, launches and
space-based services
• Liberal geo-spatial data policy for
providing remote-sensing data to tech-
entrepreneurs
Defence
• Corporatization of Ordnance Factory
Board
• FDI limit in the Defence manufacturing
under automatic route will be raised from
49 per cent to 74 per cent.
Source: Compiled from various sources and covers major policy measures
V-SHAPED Economic RECOVERY

1.50 India’s GDP contraction of 23.9 per cent in Q1: FY 2020-21 and 7.5 per cent in Q2: FY
2020-21 quarter reflect the unparalleled effect of the Covid-19 pandemic and the containment
measures that were taken to control the pandemic. The contraction was consistent with the
India’s enforcement of one of the most stringent lockdowns as reflected in the Government
Response Stringency Index measured by Oxford University. The fundamentals of the economy
remained strong as gradual scaling back of lockdowns, along with the astute support of
Atmanirbhar Bharat Mission has placed the economy firmly on the path of recovery.
1.51 NSO has estimated a contraction of real GDP by 7.7 per cent in 2020-21 as compared to a
growth of 4.2 per cent in 2019-20. This is the fourth contraction in India's GDP since 1960-61
(Figure 39). The contraction in 1965-66 and 1971-72 coincided with wars and droughts while
the year 1979-80 was associated with a severe drought and political instability. A common factor
in all these years was a steep fall in agricultural output. The year 2020-21, on the contrary,
has been bestowed with abundant monsoons leading to the agricultural sector emerging as the
silver lining of the economy. The contraction this year reflects the ‘once in a century crisis’
unleashed by the pandemic and associated public health measures.
Figure 39: Trend in India’s Real GDP Growth
Source: NSO
1.52 Government Consumption and Net Exports have cushioned the contraction in GDP
while Gross Capital Formation (GCF) and Private Consumption have contributed to the
contraction in GDP in 2020-21 (Figure 40). Government final consumption expenditure has
sustained the growth of GDP in 2020-21 with its share increasing to 14.0 per cent from 12.0
per cent in 2019-20 (Figure 41). The share of private consumption has almost remained the
same indicating the adverse impact of the pandemic and restrained personal consumption in
contact-sensitive sectors. Gross Investment has contributed most to the contraction in GDP
in 2020-21 with its share in GDP pegged at 26.7 per cent, lowest in the 2000s. Net Exports
have cushioned the fall in GDP in 2020-21 largely due to a sharper contraction in imports
than in exports.
Figure 40: Sectoral Contribution to Overall Figure 41: Share of Components of GDP
GDP Growth
GFCE PFCE GCF Net Exports

8 100
85 34 32 31 32 30 27
Share in GDP (in Per cent)

30
3
70
Per cent
55
-2
60 59
Net Exports 40 58 59 59 59 59
GCF
-7 PFCE 25
GFCE 10
Growth of Real GDP 10 10 10 11 11 12 14
-12 -5
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
Source: NSO
1.53 The advance estimates for FY:2020-21 released by NSO manifest that the economy is
expected to stage a resilient V-shaped recovery in H2:2020-21. As per quarterly estimates
released by NSO, the economy has shown a decline of 15.7 per cent by H1: FY 2020-21. A
decline of real GDP by 7.7 per cent for the whole FY:2020-21 indicates a modest decline
of 0.1 per cent in GDP growth in second half of the year. It also indicates a 23.9 per cent
growth in H2: FY2020-21 over H1: FY2020-21. Faster normalisation of business activities
amid gradual lifting of restrictions, higher festive and pent-up demand and policy support
is expected to translate into a faster-than-anticipated economic recovery over the second
half. This is supported by a strong rebound seen in several high frequency indicators in Q3:
FY 2020-21.
1.54 On the demand side, the recovery is expected to be broad-based in the second half
(Figure 42). The biggest growth driver is likely to be government consumption that is
expected to grow at a strong 17 per cent YoY in second half as against a 3.9 per cent
contraction the first half. Private consumption is also expected to improve significantly
with a mild contraction of 0.6 per cent as against a contraction of 18.9 per cent in the first
half. Investment, as measured by Gross Fixed Capital Formation (GFCF), is also expected
to recover significantly with a mild contraction of 0.8 per cent in the second half against a
sharp 29 per cent drop in H1FY21. Net Exports (Exports – Imports) turned positive in the
first half of the year with a larger contraction in imports of 29.1 per cent as compared to
contraction in exports of 10.7 per cent. With gradual recovery of economic activity, both
imports and exports have picked up and net exports is expected to re-enter the negative
territory in the second half. Exports are expected to decline by 5.8 per cent and imports by
11.3 per cent in the second half of the year.
Figure 42: Half-Yearly Trends in Growth of Components of GDP
42(a): Private Final Consumption Expenditure 42(b): Government Final Consumption Expenditure
Share in GDP YoY Growth (RHS) 10 Share in GDP YoY Growth (RHS)
62 16 20
17.0
5 14
15
YoY Growth (in Percent)

Share in GDP (Per cent)

60 12
0
-0.6 15.1
60.2 10 10
61.2 -5 13.1
58 59.3 8
60.8 13.1 11.0
-10 12.3 9.9
58.4 6 5
-15
56 4
0
57.5 -20 2
54 -25 0 -5
H1FY19
H2FY19
H1FY20
H2FY20
H1FY21
H2FY21
H1FY19
H2FY19
H1FY20
H2FY20
H1FY21
H2FY21
42(c): Gross Fixed Capital Information 42(d): Exports and Imports

15 12.1 13.6
30 Share in GDP YoY Growth (RHS) 15
10
10
25 11.0 5.3
YoY Growth (Per cent)
5 5
0.4
28.8 -0.8
0 0
20 29.1
27.7 -5 -7.3 -5.8
22.9 -5 -3.9
15 -10 -10.7
26.1 25.3 -10
-11.3
-15 -9.7
10 -15
-20
-20
-25
5
-30 -25
Exports Imports
0 -35 -30 -29.1
H1FY19
H2FY19
H1FY20
H2FY20
H1FY21
H2FY21
H1FY19
H2FY19
H1FY20
H2FY20
H1FY21
H2FY21
Source: NSO
1.55 On the supply side, Gross Value Added (GVA) growth is pegged at -7.2 per cent in
2020-21 as against 3.9 per cent in 2019-20. Only Agriculture contributed to positive growth
while Service and Industry contributed to the contraction in GDP (Figure 43). Agriculture
is set to cushion the shock of the Covid-19 pandemic on the Indian economy in 2020-
21 with a growth of 3.4 per cent – resulting in an increase in its share in GDP to 19.9 per
cent in 2020-21 from 17.8 per cent in 2019-20 (Figure 44). This indicates that agricultural
activities for rabi harvesting and kharif sowing were largely unaffected by the COVID-
induced lockdown. Industry and Services are estimated to contract by 9.6 per cent and 8.8
per cent during the year. Within Industry, Mining is estimated to contract by 12.4 per cent,
Manufacturing by 9.4 per cent and construction by 12.6 per cent. The utilities sector has
shown a sharp recovery and is set to register a positive growth of 2.7 per cent in 2020-21.
Within Services Sector, trade, hotels, transport & communication are estimated to contract
by 21.4 per cent.
Figure 43: Sectoral Contribution to Overall Figure 44: Share of Components of GVA
GVA Growth
Agri Industry Services
8
100
6 90
80
4 52 52 53 53 54
70 55 54
2 60
Per cent
Per cent
0 50
Agri 40
-2
30 30 30 29 29 29 27 26
Industry
-4 20
Services
-6 10 18 18 18 18 17 18 20
Growth of Real GVA
0
-8
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
Source: NSO
1.56 A positive growth in value addition of most of the sectors in second half is an encouraging
sign for the economy (Figure 45). This translates into a modest 0.3 per cent growth in the second
half as against a 14.9 per cent contraction in first half of 2020-21. Agriculture sector growth is
pegged at a steady 3.4 per cent in both the halves of 2020-21. Industry sector has staged a robust
recovery in second half with a positive growth of 1.1 per cent as against a sharp 20.5 per cent drop
in the first half with a sharp pick up in manufacturing sector to 0.5 per cent in second half against a
contraction of 19.4 per cent in first half. Electricity and Construction sectors are also estimated to
register V-shaped recovery with growth of 7.1 per cent and 4.4 per cent respectively in the second
half. The major brunt of the pandemic has been borne by the contact-sensitive services sector, which
contracted by 15.5 per cent in first half and are estimated to contract by 1.1 per cent in second half.
Trade, Hotels, Transport & Communication, constituting one-third of overall services, contracted
by 31.5 per cent in first half and are estimated to contract by 12.0 per cent in second half.
Figure 45: V-shaped Recovery in H2: FY 2020-21 in Most Sectors Constituting GVA
H1FY21 H2FY21
7.1 4.4 7.1
3.4 3.4 3.3
0.5 0.3
-1.4
-8.3 -6.8
-12.0 -11.3
-17.2 -14.9
-19.4
-30.2 -31.5
Construction
Manufacturing
GVA
Mining
Public admin &

Agriculture
Utilities
Trade, hospitality,
Financial, real estate

communication
defence
& professional
transport,
services
Source: NSO
1.57 It is evident from the above analysis that the economy was, as expected, adversely impacted
by the unprecedented crisis caused by the pandemic in the first quarter of FY 2020-21. With gradual
unlocking and able support of macro-economic policies, the economy has steadily rebounded
to pre-pandemic levels. Data on high-frequency indicators suggest growing convergence with
previous year’s activity levels. The sharp contraction of the economy in first half of the year is
expected to be covered by broad-based resurgent growth in second half of the year.
1.58 Lockdowns and other restrictions needed to address the public health crisis, together with
spontaneous reductions in economic activity by many consumers and producers, have constituted
an unprecedented combination of adverse shocks to global economic activity. Beyond its short-
term impact, deep recessions triggered by the pandemic have a risk of leading to hysteresis.
While the several seminal reforms will help in reducing the possibility of hysteresis, the recovery
would be regarded as having avoided hysteresis when the economy regains the pre-COVID
output path and is back on its trajectory of potential growth (assuming no COVID).
1.59 The global economy, including India, has been set back in time by the pandemic induced
crisis. In the five years before 2020-21, Indian economy grew at an average growth of 6.7 per
cent. In the year 2021-22, a sharp recovery of real GDP growth of 10-12 per cent is expected
based on a low base effect and inherent strengths of the economy. It is assumed that the economy
grows at its trend growth rate of 6.5 per cent in 2022-23 and 7.0 per cent in 2023-24 aided by
the structural reforms. If two scenarios of 12 per cent growth and 10 per cent growth in 2021-
22 are envisaged, India would be 91.5 per cent and 90 per cent below the trend level of output
respectively by 2023-24 (Figure 46).
Figure 46: Scenarios for India’s GDP Return to its Trend Path
Source: Survey Calculations using data from NSO

Note: Real GDP in 2007-08 and 2019-20 have been indexed to 100
1.60 Government recognised this potential ‘hysteresis’ effect of the pandemic on Indian
economy and has, therefore, undertaken a comprehensive reform programme. The structural
reforms and the policy push under the Atmanirbhar Bharat Mission are aimed at strengthening
the fundamentals of the economy - which should put the economy on a strong growth path
once the economy recovers from the pandemic shock. These need to be sustained to bolster the
Indian economy to reach its potential growth. The policy emphasis has also been on expansion
of public investment which would crowd in private investment. Attempts on deregulation
and liberalisation of sectors are aimed at improving the business environment to unlock
entrepreneurial energies and increase the risk appetite of private investors. The private sector
needs to partner the Government in minimising the disruptive impact of the pandemic on the
Indian economy.
OUTLOOK
1.61 After an estimated 7.7 per cent pandemic-driven contraction in 2020-21, India’s real GDP
is projected to record a growth of 11.0 percent in 2021-22 and nominal GDP by 15.4 per cent.
These conservative estimates reflect upside potential that can manifest due to the continued
normalisation in economic activities as the rollout of Covid-19 vaccines gathers traction. This
will further be supported by supply-side push from reforms and easing of regulations, push
to infrastructural investments, boost to manufacturing sector through the Productivity Linked
Incentive Schemes, recovery of pent-up demand for services sector, increase in discretionary
consumption subsequent to roll-out of the vaccine and pick up in credit given adequate liquidity
and low interest rates. This path would entail a growth in real GDP by 2.4 percent over the
absolute level of 2019-20 – implying that the economy would take two years to reach and go
past the pre-pandemic level (Figure 47). These projections are in line with IMF estimate of real
GDP growth of 11.5 per cent in 2021-22 for India and 6.8 per cent in 2022-23. India is expected
to emerge as the fastest growing economy in the next two years as per IMF.
Figure 47: Projections of Real GDP for 2021-22
Source: NSO and Survey Calculations
1.62 The new year has dawned with the approval of long-awaited Covid-19 vaccine and initiation
of vaccination drives in various countries. With the approval of two indigenously manufactured
vaccines for emergency use, India initiated the mega vaccination drive on 16th January, 2020.
The COVID Vaccine Intelligence Network (Co-WIN) system – a digitalised platform - provides
real-time information of vaccine stocks, their storage temperature and individualised tracking of
beneficiaries of the vaccine on a real-time basis.
1.63 India became the fastest country to roll-out 10 lakh vaccines in a matter of
six days. India has also emerged as a leading supplier of the vaccine to various countries with
initiation of exports to Brazil and Morocco on 22nd January, 2021. The swift roll-out of the
vaccine gives strength to the optimism on both health and economic fronts – igniting hopes of a
robust recovery in services sector, private consumption and investment.
CHAPTER AT A GLANCE
 The year 2020 was predominated by the COVID-19 pandemic, posing the most
formidable economic challenge to India and to the world, since the Global Financial
Crisis.
 Global economic output is estimated to fall by 4.4 per cent in 2020, the sharpest
contraction in a century. Advanced economies were hit harder, in terms of lives and
economic output, compared to Emerging Market Developing Economies.
 Without a cure or vaccine, tackling this all-pervasive crisis made public health policy
crucial. While policymakers faced a dilemma of “lives versus livelihoods, i.e., flattening
the disease curve would invariably entail steepening of the recession curve.
 Around the globe, governments and central banks deployed a range of policy tools
such as lowering key policy rates, quantitative easing measures, loan guarantees, and
fiscal stimuli.
 India enforced an intense lockdown at the onset of the pandemic, characterizing a
unique response in several ways driven by the findings from both epidemiological and
economic research. India’s humane policy response focused on saving human lives,
recognising that the short-term pain of an initial, stringent lockdown would lead to
long-term gains both in the lives saved and in the pace of the economic recovery.
 Resultantly, India has managed to avoid the second wave despite continual unlocking.
It has ably managed to flatten the epidemiological curve, with the caseload peaking in
mid-September followed by a steady drop in daily cases and fatalities.
 COVID-19 put emergency brake on an economy that was gaining momentum at the
start of the year 2020. India’s GDP is estimated to grow by (-)7.7 per cent in FY2021,
composed of a sharp 15.7 per cent decline in H1 and a modest (-)0.1 per cent fall in the
second half.
 Agriculture sector has remained the silver lining while contact-based services,
manufacturing, construction were hit the hardest. Starting July, a resilient V-shaped
recovery is well underway, as demonstrated by the recovery in GDP growth and the
sustained resurgence in high frequency indicators such as power demand, E-way bills,
GST collection, steel consumption, etc.
 Inflation, mainly driven by food prices, remained above 6 per cent for much of the
year, given supply disruptions. The softening of CPI inflation recently reflects easing
of supply side constraints that affected food inflation.
 The weak demand led to a sharper contraction in imports than exports, with Forex
reserves rising to cover 18 months of imports.
 Sharp rise in commercial paper issuances, easing yields, and sturdy credit growth to
MSMEs, portend a revamped credit flow mechanism for enterprises to survive and grow.
 As part of India’s four-pillar strategy, calibrated fiscal and monetary support was
provided attuned to the evolving economic situation, cushioning the vulnerable in the
lockdown and boosting consumption and investment while unlocking. Long-pending
structural reforms in agriculture, mining, labour, etc. were concurrently undertaken
for the economy to return to the potential growth path, keeping super-hysteresis at
bay. The estimated real GDP growth for FY 2022 at 11 per cent is the highest since
independence.
 India became the fastest country to roll-out 10 lakh vaccines in a matter of six days
and has also emerged as a leading supplier of the vaccine to Brazil and neighbouring
countries.
 With the economy’s returning to normalcy brought closer by the initiation of a mega
vaccination drive, hopes of a robust recovery in services sector, consumption, and
investment have been rekindled.
 India’s mature policy response to this “once-in-a-century” crisis thus provides
important lessons for democracies to avoid myopic policy-making and demonstrates
the significant benefits of focusing on long-term gains.
References
Gourinchas, P-O (2020), “Flattening the Pandemic and Recession Curves”, VoxEU.org, 3 June.
Hansen, Lars Peter. and Thomas J. Sargent. 2001. “Robust control and model uncertainty”.
American Economic Review 91(2), 60–66.
International Monetary Fund. “World Economic Outlook” Various issues
Schueller Emily, Eili Klein, Katie Tseng, Geetanjali Kapoor, Jyoti Joshi, Aditi Sriram, Arindam
Nandi, Ramanan Laxminarayan. “COVID-19 for India Updates” March 24,2020. https://cddep.
org/wpcontent/uploads/2020/03/covid19.indiasim.March23-2-eK.pdf
World Bank. “Global Economic Prospects” June 2020
World Bank. “Global Economic Prospects” July 2021
Xavier Estupinan & Mohit Sharma & Sargam Gupta & Bharti Birla, 2020. “Impact of COVID-19
Pandemic on Labour Supply and Gross Value Added in India” Indira Gandhi Institute of Devel-
opment Research, Mumbai Working Papers 2020-022.

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State of the Economy 2020-21: 01

A Macro View CHAPTER

“Doing the right things at the right time, is the rope

SPREAD OF THE PANDEMIC

Source: WHO, Survey Calculation

Figure 2: COVID -19 Infection Waves

New cases (Thousands)

AEs EMDEs (excluding China and India) India China (RHS)

New Deaths (Hundreds)

AEs EMDEs (excluding China and India) India China (RHS)

Source: Survey Calculations using data from WHO

Source: Survey Calculations using data from WHO

Spread of Pandemic in India

0 50 100 150 200 250 300

Figure 5: Trends in Spread of COVID-19 across Regions in India

New Cases (Lakh)

Figure 5 (c): Total Confirmed Cases per Lakh

Source: Data accessed from https://www.Covid19india.org/, MoH&FW

New Deaths ('000)

6 (c): Total Deaths per Lakh

Source: Data accessed from https://www.Covid19india.org/, MoH&FW

Figure 7: Ramping up Testing across the World

No testing Policy Limited Testing Testing if symptoms Open public testing

POLICY DILEMMAS UNDERLYING COVID-19

Figure 10: Trade-off between Flattening COVID-19 Infection Curve

Source: Adapted from Gourinchas, P-O (2020)

Demand-side and Supply-side Shocks

BOX 1: SECTORAL IMPACT OF COVID-19 IN INDIA:

Source: MoSPI, PLFS 2018-19

CPI- Food Inflation Components of CPI- Food Inflation

Mining and Quarrying

Profitability Ratios of Consumer Goods

Machinery Sector Pharmaceuticals

Shipping Freight Rate

Financial Services Bank Credit Growth (YoY)

Average Net Assets Under Management

Communications Services Telecom Subscriber Base

Real Estate Services Housing Prices

Aggregate Order Backlog of Industrial &

Hotels & Tourism, Wholesale & Retail Trading

Source: Compiled from various sources

DISRUPTION OF GLOBAL ECONOMY BY THE PANDEMIC

World AEs Euro area EMDE India

140 Merchandise Trade Volume

Figure 15: Commodity Prices Figure 16: Inflation Dynamics

Source: IMF Source: WEO October 2020 database, IMF

Figure 17: Global Financial Conditions Figure 18: Weakened US Dollar

Source: World Bank, Data for 2020 is Estimates Source: OECD

INDIAN ECONOMY ON THE PATH OF A RESILIENT V-SHAPED

Source: Compiled from various sources

Source: Ministry of Agriculture, Department of Food and Public Distribution

Figure 24: Growth in Core Index Figure 25: Growth in IIP

Source: MoSPI, DPIIT

Source: Ministry of Road, Transport and Highways; GSTN

BOX 2: E-WAY BILLS

Figure B5: All India- Value of Goods Traded Per Person

Source: Data from GSTN curated from public platform Indiapulse@ISB

log (trade)ij,t = a + b1 * log(distance) + b2 * D (Border) + b3 * D (COVID)t + eij,t

(1) (2) (3)

D(Border) 0.333* 0.352* 0.361***

D(COVID) -0.360* -0.389*