31 August 2020 – a Monday that perhaps all Indians will remember ever after. It was no ordinary Monday in the history of mankind, especially for more than a billion Indians.

On this day, the Indian government’s National Statistical Office of the Ministry of Statistics and Programme Implementation declared that in the first quarter of 2019-20, the country’s Gross Domestic Product (GDP) contracted to 23.9%.

In simple terms, it means that compared to the first quarter of 2019 (April-May-June), the GDP slashed to 23.9% in the said quarter of 2020. With such a downswing, Prime Minister Narendra Modi’s ‘5 trillion dollar economy’ proposition appears like a pipe dream. This is even more so now, with the COVID-19 pandemic further crippling the Indian economy. 

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The contraction is certainly not something that has happened suddenly. The economy was not in good health for many months even before the pandemic broke out. Therefore, that a sudden and heavy stroke of the pandemic would shatter the economy was not a surprise.

Before delving deeper, an understanding of the basics of the term ‘GDP’ is required. Generally speaking, there are four pillars that comprise the GDP – private consumption demand, private sector business, demand for goods and services generated by the government and addition to GDP after subtracting the imports from exports.

In the present case, to be precise, the government demand for goods and services, though increased, was in no way close to even stalling the fall in the rest of the three components. Hence, the net outcome is the contraction of the GDP.


Also read ‘COVID-19 Adds Fuel to India’s Bonded Labour Crisis’


The Reserve Bank of India (RBI) can come forward to refill the fiscal deficit that would, as estimates suggests, be more than double the estimated target of 3.5%. The bigger question is, who would bear the burden of these huge deficits?

As experts say, monetisation is the easiest way out. But, it will also bring with it the burden of huge inflation. Therefore, the challenge here is even bigger than what it might look like.

Due to the COVID-19 pandemic, production in the economy has come to a standstill. This is just the tip of the iceberg. The schemes that were considered to generate employment may not be valid or as effective in the post-pandemic period.

For instance, with respect to the MNREGA, the government is indeed serious about this scheme that had generated massive employment and earning for the rural mass. However, the mammoth reverse urban-to-rural migration that took place during the pandemic is historic. The policy estimates did not consider these new additions to the rural labour force.

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Catering to this positive bubble, assuming that they would return back to their urban dwellings in the near future, is not easy. Some reports in the media suggest that people who went back to their villages may not prefer to return back to their urban employers even in near future. This will only turn these ‘bubbles’ into a new reality and submerge the additional migrated labour force into the existing rural labour force. 

Many such examples can be cited, wherein the government has no other option other than to rework its policies, regardless of whether they are already in force.

The real crisis is with the ‘informal sector’. No proper estimates are there for this ‘biggest’ employment generative sector of the Indian economy- both I urban as well as rural areas. Estimates of the International Labour Organisation (ILO) say that globally, out of every ten workers, six are in the informal sector. Out of every five enterprises, four are in the informal sector. One can easily gauge the extent of this in India.


Also read ‘What Does Moody’s Downgrade Mean for India in the Backdrop of the Pandemic?’


Even prior to the pandemic, there was noise about ‘jobless growth’ among economists. Now with the pandemic looming large, it is a reality. Estimates suggest that during the first 21 days of the lockdown, the economy lost Rs 32000 crore daily. Even after that, there were losses to around 57% of the businesses.

A recent survey in 12 states by the Bengaluru based Azim Premji University claims that after the pandemic hit and the lockdowns ensued, around 87% people lost their jobs in urban areas and around 57% in rural areas. The survey further claims that around 49% of the households do not have even the minimum subsistence income to sustain their life for even a week.

Surveys are based on samples. So quite evidently, if the data is assumed to be true, then the reality is perhaps hard, if not the hardest.

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‘COVID-19’ is not the name of a virus any more. Rather, it is ‘structural change’ that the whole world is witnessing, and India is no exception. Each and every step has to be revised, refined and perhaps redefined, if at all policymakers are serious about the economy and society.

The welfarist role of the government should be much more prominent during this time of emergency, if not a ‘war’.  The remedial measure lies in the pages of history. The government should take proactive steps towards generating the wheels of production, especially in the rural areas, through infrastructure projects. This, in turn, will generate employment, especially for those hitherto engaged in the informal sector.

Once employment is generated, earnings will start flowing in. This will boost the overall demand for consumer goods and gradually the economy will come back on track. Expenditure management is not the solution at this hour of crisis. Sooner the government realises this, the better for India.

Views expressed are the authors’ own.