Despite India’s economy going through a tough recession phase in 2020 during the first quarter, a report by the United Nations has indicated that it’s the strongest across Asia. Its market will continue attracting large investments post COVID-19 pandemic. India’s GDP is expected to shrink but not as much as many anticipated. In the July-September quarter, it shrunk down to 7.5% after a 24% decline in the April-June quarter.
A Budget Like Never Before
Finance Minister Nirmala Sitharaman is soon expected to present the country’s budget, which she has dubbed ‘a Budget like never before’. Questions such as whether the budget or other government interventions will heal the economy from the COVID 19 pandemic continue to rise. Opening the economy, recent government policies, spending festival boost, and easy financial conditions have seen the economy reflate at a pace that has surpassed predictions, despite being slow.
The July-September quarter recorded a positive growth as a result of a pick-up in industrial production. Policy responses and good monsoon have also made the agricultural sector recorded positive growth. India has been particularly supportive of new prospective industries by formulating friendly regulations and policies. Fast-rising industries such as online gaming, which have been thriving during the lockdown, have gained a strong presence in the landscape. The Indian gambling industry numbers are fascinating considering that this was an unpopularized niche not so long ago. Other sectors such as tourism, travel, and hospitality area, however, yet to pick-up.
India’s Information Technology Still on The Rise
Recent reports state that India’s evolution from Information Technology services for Multinational corporations to the ecological community continues to attract international investments. According to the report, the Foreign Direct Investment (FDI) streaming from the Indian subcontinent has increased for the past four years.
The continued increase in the streaming from direct investments in foreign countries resulted from the rise in the total of streamed investments from India, which were 80% of the total streamed investments from the sub-region,” read part of the report.
The spreading of the direct investment outflows across the globe from the sub-region continued to be uneven, with India accounting for the most.
In 2020, the greenfield FDI inflows value fell by 43%, bringing about signals of a reverse in the sub-region’s growth trend. India’s economy proved to be the most resilient in the sub-region due to a steady increase in its FDI inflows and its economic growth after the pandemic.
In 2020, stock exchange markets were swaying between revivals and auctions. However, they have now flowed past their previous highs. A report by the Institute of International Finance, portfolio flow to economies of developing nations, which includes India, which was at $76.5 billion in November, which approximately equals the shared equity and debt ($39.7 billion and $36. 6 billion respectively).
2021 Projected GDP Growth
In the last 30 years, India’s economy has averaged at 6.5% to 7% growth rate. Despite being hit hard by the pandemic, there continue to be positive growth prospects in the average term. According to Neelkanth Mishra of Credit Suisse India has all reasons to upgrade after years of lowering to the average term outlook in growth.
Despite the growth hiccups and structural balance sheet issues, Sonal Varma of Nomura feels that easy financial conditions, vaccinations, and global recovery will result in a GDP growth overturn of 9.9% this year.
‘’We foresee a two-track recovery with exports, manufacturing Capex and pockets of real estate leading, whereas services, government Capex and leveraged consumption lagging in India,’’ stated Kapil Gupta of Edelweiss.
According to Kapil, India’s Gross Domestic Product will have a rebound to 7-8% in the fiscal year (22) after a 6-7% contraction in the fiscal year (21).
Above all, India’s COVID-19 curve continues to flatten. New infections continue to decrease every day, and the current rate at which people are recovering is approximately 95%. Several candidates have also tried out the vaccine and have confirmed its suitability for use in India.
However, the demand conditions continue to remain low due to the decrease in both outflows and inflows, which reflects the state of internal and external demands. There is also the problem of policy weaknesses on the demand and supply side. A recent report indicated a 22% decline in the government’s final consumption expenditure during the second quarter. Government spending was also low, at 12%. This is as a result of the failure by the government to offer a financial boost to avoid a decline in the demand for investment by businesses.
We are yet to see India’s fastest economic growth, and 2021 could be the year the economy records a dramatic resurgence. Manufacturing will definitely go up in 2021 and much higher in the new decade. The economy will depend on consumer spending as the entertainment industry will not be resurfacing any time soon. Unlike most would think, the are multiple factions actively investing in the economy. If this is any indication, India is set to be among the first to shake off the Covid19 economic slump.