Slowdown of the Indian Economy during 2019-20: An Enigma or an Anomaly

Gupta, Poonam and Tyagi, Abhinav (2022): Slowdown of the Indian Economy during 2019-20: An Enigma or an Anomaly. Published in: NCAER Working Paper Series No. 137

Abstract

In this paper, we analyze the deep and anomalous economic slowdown in 2019-20, when the Indian economy grew at a rate of 4 percent, the lowest in a decade. We argue that the slowdown was largely confined to one year, 2019-20. The growth rate in the prior years averaged at 7 percent a year, and in none of the other years was it significantly below this average rate of growth. In contrast to some of the prevailing narratives, the slowdown did not permeate widely across sectors and activities. It was concentrated primarily in the manufacturing sector. The agriculture sector grew faster than before, and the services sector experienced only a mild deceleration, that too in the last two quarters of the year. On the demand side, the slowdown was primarily reflected in a sharp contraction in exports. In comparison, consumption decelerated by a milder amount, investment growth was broadly flat, and government expenditure grew at a faster pace than in the previous decade. The slowdown can be accounted for by three factors. First, about a 50 basis points worth of the slowdown was due to the COVID-induced lockdown in the last week of March 2020. Second, more than 100 basis points worth of the slowdown was due to the collapse in exports, attributed both to a large global slowdown in trade, and to the fact that India lost ground to other countries in maintaining its market share in a slowing market. Finally, the credit collapse from banks, Non-Banking Financial Companies, and Housing Finance Companies mattered, which likely made the lack of credit an impediment to production, investment, export, and consumption decisions.

• Item Type: MPRA Paper
• Language: English
• Keywords: Development, Growth, Exports, Manufacturing, India
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E65 - Studies of Particular Policy Episodes; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F40 - General; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O53 - Asia including Middle East

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