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INTRODUCTION TO RECESSION
The term “recession” refers to a period of economic decline characterized by a reduction in the level of economic activity, typically measured by a decline in Gross Domestic Product (GDP) over two consecutive quarters. In the case of India, the country experienced a recession in 2020 due to the COVID-19 pandemic and the resulting lockdown measures.
India’s economy was already experiencing a slowdown before the pandemic hit, with GDP growth rates falling from 8.2% in 2016-17 to 4.2% in 2019-20. However, the pandemic and the lockdown measures that followed had a severe impact on the economy, leading to a contraction in GDP by 7.7% in the financial year 2020-21.
PRE- CONDITIONING OF RECESSION
The lockdown measures implemented to control the spread of the virus led to a significant decline in economic activity across all sectors of the economy. The manufacturing sector, which accounts for a significant portion of India’s GDP, saw a contraction of 9.6% in 2020-21. Similarly, the construction sector, which employs a large number of people, saw a decline of 8.6%. The services sector, which is the largest contributor to India’s GDP, also saw a contraction of 7.5%.
One of the worst-hit sectors during the pandemic was the informal sector, which employs a large number of people in India. The lockdown measures made it difficult for people to work, and many lost their jobs or faced reduced incomes. This had a severe impact on the country’s poor, who often have little or no savings to fall back on.
The government of India announced several measures to support the economy during the pandemic. These included a $266 billion stimulus package, which included direct cash transfers, food subsidies, and loan guarantees for small businesses. The Reserve Bank of India also reduced interest rates and provided liquidity support to the financial system.
However, the effectiveness of these measures in reviving the economy has been limited. The stimulus package has been criticized for being insufficient, with many experts calling for more direct cash transfers to individuals and small businesses. The loan guarantees provided to small businesses have also been criticized for being too difficult to access, with many businesses reporting delays and a lack of clarity in the process.
Another factor that has contributed to the economic slowdown in India is the country’s banking sector. India’s banking sector has been struggling with high levels of non-performing assets (NPAs), or bad loans, for several years. This has made it difficult for banks to lend, which has limited the availability of credit to businesses and individuals.
The pandemic has also exacerbated this problem, with many businesses defaulting on loans due to the economic slowdown. The government has announced several measures to address the issue of NPAs, including a new bankruptcy law and a recapitalization plan for public sector banks. However, the effectiveness of these measures remains to be seen.
In conclusion, India experienced a recession in 2020 due to the COVID-19 pandemic and the resulting lockdown measures. The lockdown measures had a severe impact on the economy, leading to a contraction in GDP by 7.7% in the financial year 2020-21. While the government has announced several measures to support the economy, the effectiveness of these measures has been limited. The country’s banking sector also continues to be a cause for concern, with high levels of non-performing assets limiting the availability of credit to businesses and individuals.
similarly, the recession is observed in India in the upcoming 4-5 months and its effects have already started happening we also observe the hikes in interest rates by RBI and the surplus demands in production.