Is the Indian Economy Heading Towards Depression

Before the coronavirus pandemic, the Indian economy was struggling to grow. According to the official statistics, in the first quarter of 2020, GDP was 3.1%, but during the lockdown, the Indian Economy shrinks to 23.9% in the next three months ending in June. Also, India’s performance is the worst among G-20 countries. While the USA economy shrunk by -9% and the UK economy shrunk by -20%.

Indian government blame the pandemic and the lockdown for the economic crisis. But the Indian economy is struggling since demonetization, in 2016. According to the capital economist, Indian investment collapsed by 47% compared to the previous year, while household consumption contracted by nearly 27%. Many economists have predicted; it will take almost three years to recover from this economic depression.
Indian Economy

Economists’ views on the Indian economy

Shilan Shah, the capital economist said the second quarter should mark the low point for India’s economy, but signs are indicating, the recovery could be slow, even though lockdown measures have been eased. The continuous rapid spread of the coronavirus will dampen domestic demand said Shilan Shah. This will lead to higher unemployment as well as the failure of the banking system. In the last 5 months, 14 crore citizens have lost their jobs. Small factories are closing due to a lack of demand in the market. People are not buying non-essential items which and as a result, leads to more unemployment and ultimately the Indian economy crash. Only the agriculture sector is growing.

India has never faced a sustained long-term downturn in economic activity since 75 years of independence. However, several economists say that the impact of the Indian economic situation is likely to be worse in future.

The veteran economist Arun Kumar thinks the Indian economy would be the first country in modern history to face depression. It would take at least three to four years to emerge out of it.

Surajit Das, assistant professor at JNU’s Center for Economic Studies and Planning (CESP) gives his perspective on this situation. The economist says, waggled growth will boost demand, and it is the only solution under this situation. The government thinks supply-side interventions will save the day as more damage leads to more output, profit and employment.

20 Lakh Crore Package to Improve the Indian Economy

India’s PM Narendra Modi announced a 20 lakh crore package and promised, to improve the Indian economy. But in this package, only 10% is direct cash. Most of it is in liquidity form. Liquid infusion into banks is meaningless unless that money reaches the Indian economy. The lockdown planning in India is a failure. PM Modi announced a complete lockdown on 24 March 2020. It creates chaos among people in India. Migrant labourers were suffering badly. Many labourers started returning to their


If we want to understand the impact of economic depression on the Indian economy, we should analyze the impact of the lockdown on 1.3 billion people.


GDP = Consumption + Investment + Government Spending + (Exports – Imports)

  • Consumption = Goods and services that we purchase.
  • Investment = Factory or business starts.
  • Government Spending = Government expenditure
  • (Exports – imports) = Net of export (i.e. we sell goods out of the country) and import (i.e. we buy goods out of the country)

India’s GDP falls due to the above values which shows negative growth. Change in mobility between 2019 and 2020 in %.

  • Financial Real Estate and Professional services fall to -5.3%.
  • The manufacturing sector falls to – 39.3%. Only Agriculture, forestry and fishing are showing positive growth in the Indian economy.

The private sector is cutting jobs and firing employees. The government must spend money on people’s welfare and employment.

If India wants to recover the Indian economy, it should make investments in Infrastructure to boost the economic activity and it will lead to employment.

Infrastructure India should build

Since the 2008-2009 financial crisis, it shows that South Korea directed nearly 70% of its stimulation towards green measures, rebounding faster than other economies. India should also invest in renewable energy, like rooftop solar.

India’s 90% of the economy belongs to the informal sector. The informal sector includes agriculture, and it gives 80% to 90% of employment. Many experts suggest that the government’s policy destroyed the informal sector. The crisis in the informal sector started due to demonetization, GST and the lockdown. The informal sector provides 40 crore jobs. But during this lockdown, around 2 crore people became jobless.

Opposition leader advises the central government to improve India’s informal sector. After demonetization, the NDA government introduced GST. It gave expected returns as big companies earned a huge profit with recorded turnovers above the threshold of Rs 20 lakh. Especially trading firms service providers and micro-enterprises general stores, tailors, cobblers, barbers, plumber masons, electricians.

The Solution to Improve the Indian Economy

For the Indian economy, the solution is supply and demand-side distribution. If people do not earn money, they will spend less, and this will reduce demand. Many economists suggest, if India wants to revive its economy then firstly, the government should increase its spending on consumers.

When consumers start earning, they will spend on non-essential products, and it will increase demand and supply. India needs foreign investment. Direct investment should be permitted and encouraged in those sectors which will significantly contribute to income generation, employment and net export income. This stipulation should become a legal right without any state intervention as envisaged in (MAI).

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