Indian economy and the possible trinity of resilience

By: Tulsipriya Rajkumari and Sanjana Kadyan
From a phoenix burnt to ashes rises another, renewed and reborn. 2020 has been the year of the phoenix for India, a year of deep suffering brought by an unexampled pandemic, a year that locked humanity’s mental energies into a firespiral of uncertainty and despair but also a year that unlocked new levers of human resolve and economic resilience.
The spread and intensity of COVID-19 induced twin demand and supply shock revealed startling levels of socio-economic vulnerabilities across sectors of the economy and geographies. While non-essential sectors predominantly catering to discretionary consumption bore the unpreventable brunt of a full throttle output shock, essential ones like agriculture underwent a dampened shock primarily emanating from the indirect impact of restricted activities in non-essential sectors. As demonstrated in Economic Survey 2020-21, disruptions in domestic and global supply chains triggered a supply shock of import-intensive agriculture inputs like fertilizers and pesticides, as also agricultural exports like rice, poultry products and spices. Spiralling and broad based food inflation witnessed in the first quarter of FY21 was, hence, inescapable. However, timely and proactive exemptions from COVID-19 induced restrictions provided by Government of India facilitated uninterrupted cropping activities and largely insulated agriculture. Manufacturing sector endured a ubiquitous demand and supply shock penetrating almost all sub sectors including textiles and fabrics, consumer goods, computer hardware, machinery and equipment. However, a surge in health services boosted the pharmaceuticals sector, exemplifying the case of heightened opportunity in a crisis situation. Construction and contact intensive services sector, particularly trade, tourism and transport were afflicted the most due to the pandemic induced requirements of social distancing. Suppressed demand in down- stream industries like cement and steel had a debilitating effect on mining operations despite being exempted from lockdown restrictions.
The geographical spread of the pandemic induced shock in India was intertwined with the pre-existing economic vulnerabilities of the states. The Economic Survey 2020-21 attempts to interpret this vulnerability as a combination of Gross Value Added (GVA) shock and labour shock. The highest output contributing state and the COVID-19 epicentre of the country i.e. Maharashtra grappled with contact-sensitive services sector shock and labour market stresses with 56 per cent of its output coming from the services and 7.5 per cent of the country’s Micro, Small & Medium Enterprises (MSMEs) located in the state. While Tamil Nadu and Kerala were relatively more exposed to the construction sector shock, a manufacturing slowdown lent risks to economic recovery in Gujarat and Jammu & Kashmir. Punjab, though sheltered by the relatively resilient agricultural sector, experienced severe labour shocks with 62 per cent of its non-agricultural sector being informal. Services led informal sector shocks also made states like Delhi and Telangana vulnerable. The ubiquity of construction led informal sector shocks was most severely felt in Uttar Pradesh.
While the full impact of the pandemic on the India economy is still unravelling, the economy has gained macro-resilience at three levels. Firstly, instantaneous resilience to limit immediate damage was imparted by timely and pro-active support of Government of India to vulnerable households and businesses. Secondly, calibrated fiscal and monetary policy-pivoting offered dynamic resilience to sectors to adapt to new challenges and recover. The third and the most important of all is the health system resilience that Centre, State and local Governments built in response to the pandemic, a critical growth engine for the fledgling flight of the new-born phoenix. At the core of this trinity of resilience lies an irrepressible human spirit that strives to find its way back to wholeness!