A decade’s data shows that India is yet to recover fully from covid

A comparison of 5-year spans before and after the pandemic reveals how much further we must go

is chief economist at Bank of Baroda and author of ‘Corporate Quirks: The Darker Side of the Sun’.

Economic data since covid times has been erratic. ‘Base effects’ bear influence even today, which makes interpreting growth indicators harder. The pandemic saw two severe lockdowns imposed that impacted India’s economy at the macro level as well as individuals at the micro level. Reverse migration to villages took place. Relief was more through monetary policy than handouts, unlike in the West. The question is whether the bruises of covid and its lockdowns have fully healed.

Let us look at data. As single-year numbers can be distorted by ‘base effects,’ we should look at averages over 5 years. Hence, 2018-19 can be taken as the cut-off year before covid for us to compare half-decade periods.

First, on GDP, India has been the world’s fastest growing major economy for the last three years. However, the compounded annual growth rate (CAGR) for the period 2019-20 to 2023-24 was 4.3%, compared with 7.4% in the five-year period ending 2018-19. Clearly, there is a long gap to be covered here. In absolute numbers, real GDP increased from ₹98.01 trillion in 2013-14 to ₹139.9 trillion in 2018-19, which is an increment of ₹41.9 trillion. In contrast, GDP for 2023-24 is expected at ₹172.9 trillion, which is an increase of ₹33 trillion over 2018-19.

Second, the same story is seen in the case of value addition in manufacturing.

The CAGR in the half-decade ending 2018-19 averaged 8.3%, which then dropped to just 3.1%. Hence, while robust PMI numbers bring about cheers every month, the fact is that Indian industry has not really recovered.

Third, inflation control has been a casualty too. Various factors led to spikes. Lockdown scarcities pushed up prices, followed by a global commodity price boom as the world bounced back to an extent from lockdowns. This was followed by the Ukraine War, which hardened global oil prices as well as retail rates in India. Average inflation was 4.5% in the pre-covid period and 5.6% in the next five-year span.

Fourth, while there is lots of optimism on fiscal plans, with India’s deficit ratio aiming for a roll-back to the 4.5%-ofGDP mark in 2025-26, the average fiscal deficit before covid struck was just 3.67%. It increased to an average of 6.56% in the five years ended 2023-24. In absolute terms, it increased from an average of ₹5.63 trillion to ₹15.61 trillion. This meant the banking system was under pressure, as the government’s gross borrowings averaged ₹13.78 trillion, up from ₹6.24 trillion. This ballooning of the deficit is not because of largesse extended, but explained largely by a major drop in revenue and substantial deferment of disinvestment plans.

Fifth, the Centre’s debt-to-GDP ratio increased from 48.1% in 2018-19 to 56.9% in 2023-24. Interestingly, it had declined in 2018-19 compared with 2013-14, when it was at 50.5%. India’s state-level debt-to-GDP ratio increased from 22.4% in 2013-14 to 25.3% in 2018-19, and then to 28.4% in 2022-23. There has been a worsening overall and it will take at least another 2-3 years for us to get back to pre-covid times.

Last, the pandemic’s biggest setback was to employment. There was widescale reverse migration during the lockdowns, and while people have gradually returned to their work places, it shows a link with the level of economic activity.

With the economy slowing down, it was clear that demand for labour would be strictly need-based, as also seen in investment data. Centre for Monitoring Indian Economy data on unemployment shows that India’s joblessness rate over 50 weeks from January 2016 to February 2020 averaged 6.6%. For the subsequent period starting March 2020 (when the first lockdown began) to February 2024, it averaged 8.5%.

There are two fields which were not linked directly to covid but have shown a better performance in the post-covid period. The first is agriculture, where average growth was 3.2% in the period till 2018-19. This improved to 4% for the subsequent quinquennium ending 2023-24. Relatively good monsoon rains (barring in 2023) and their fairly satisfactory distribution helped. Also, the reverse migration that began in 2020 added more hands to the farm labour force, which had faced shortages in the past on account of rural folks seeking employment in urban zones.

The other was foreign trade, especially exports. Here, the country did much better. In the five years ending 2018-19, growth averaged 1.2%, which increased to 8.1%. This is impressive. While lockdowns affected exports in 2020-21, things improved as the world economy moved upwards again, notwithstanding the speed breaker erected by the Ukraine War.

We could conclude from all this data that while most economic indicators have looked quite vibrant in the last two-three years, much of it can be attributed to base effects. A more comprehensive view of India’s economic performance before and after covid shows that there is still some distance to be covered. Also, fiscal correction is still a challenge, and while economic minds have their eyes set on a deficit ratio of 4.5%, the ideal of 3% did not look distant in the pre-covid period. This may be a fair way of summing up the country’s current economic position.

These are the author’s personal views.