India’s Economy Exits Deep Recession as Fledgling Recovery Strengthens

India’s Economy Exits Deep Recession as Fledgling Recovery Strengthens


NEW DELHI — After plunging into one of the worst recessions of any major economy, India is showing signs of a modest comeback.

But that recovery is uneven, and the country is still struggling to find ways to sustain growth. Its service sector is vulnerable, and the vast informal economy — which employs farm hands, day laborers, rickshaw drivers and many millions of others — remains weak as well.

India’s economic output grew 0.4 percent in the third quarter, which ended in December, compared to the same period a year earlier, according to economic data released by the Indian government on Friday. The figures show that India has emerged from a recession, which is generally defined as two consecutive quarters of economic shrinkage.

The economic turnaround is good news for the government of Narendra Modi, the prime minister, and for Indian households that have struggled with the impact of the pandemic on the country and on the global economy. But that rate is still slow compared to previous years, when the economy has grown at a pace of 6 percent a year or higher.

Growth had already been stumbling for the two years before the pandemic hit. The challenge for the government will be to find opportunities for a relatively young and aspirational population.

Economists said that the fledgling recovery was driven by services, agriculture, construction and some sectors of manufacturing. The service sector — especially financial and professional services — has done much better than expected, said Priyanka Kishore, head of South Asia at Oxford Economics.

“The broadening of the recovery, alongside the solid growth momentum, creates upside risks to the 2021 growth outlook,” she said. “However, there are reasons to be cautious in the near term, given the slow start to vaccination, spikes in cases in some states and the threats from new variants.”

Last spring and summer, India imposed one of the world’s strictest and longest lockdowns, allowing only essential services to function. That brought the economy to a near standstill and left many people unemployed, especially workers who are part of the country’s enormous informal economy. India’s economy was one of the worst performing among major countries last year, contracting 24 percent in the first quarter, despite expansive government spending. In the second quarter, it contracted again, by more than 7 percent.

For the moment, though, the pandemic appears to be largely under control, and India has emerged from its lockdown. New virus cases have dropped to around 15,000 per day, compared with nearly 100,000 last fall. Virus deaths have dropped to around 100 per day, compared with more than 1,000 during the worst period of 2020.

But cases are rising again in some parts of the country, including the financial capital of Mumbai.

In recent weeks, in many Indian cities, life has returned to near normal. Restaurants and bars are crowded over weekends. Movie theaters, swimming pools and gyms have reopened. Street markets are thronged with people shopping for weddings and festivals. And some schools are finally back in session.

India produces millions of doses of vaccines each day, and the world’s largest immunization drive is fully underway, though it is restricted to frontline workers. More than 13 million people have received at least one dose of the vaccine. The government has announced that starting on March 1, private hospitals will also be allowed to administer the vaccine to anyone over 60 years or those over 45 years old with certain medical conditions.

Experts hope that as the vaccination rollout picks up pace, it will blunt the effects of a possible second wave and put the economy back on track.

But the data shows an uneven recovery, with small businesses facing the brunt of the downturn.

“Large companies have seen a major increase in their profit. This shows up in the G.D.P. numbers. In the two consecutive quarters, the listed companies have made unprecedented record profits, ” said Mahesh Vyas, chief executive of the Center for Monitoring of the Indian Economy. “They are grabbing markets at the expense of small-scale industries. So small- and medium-size companies are not able to survive.”

But the G.D.P. figures fail to give a complete picture because they do not reflect the effect on the informal economy, said Arun Kumar, an economist at the Institute of Social Sciences in New Delhi.

“This data does not account for the unorganized sector at all, and that is the sector which was hit the most,” he said. “The organized sector in e-commerce is gaining at the expense of brick-and-mortar stores.”

The unorganized sector excluding agriculture employs nearly 50 percent of the work force and contributes more than 30 percent of the G.D.P.

Various agencies forecast that the Indian economy will grow more than 10 percent in 2021.

But the Indian government, which had been predicting a higher growth rate for the last quarter, now says that the economy will have shrunk by 8 percent for the financial year ending March 2021.

Jeffrey Gettleman contributed reporting from New Delhi.



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