In October 2020, official data confirmed that the Indian economy had entered a technical recession. But since then, the gross domestic product (GDP) has gained ground. As such, early 2021, it was hoped that the resumption of growth in India would start to accelerate. At that time, concerns about Covid-19 had also taken a back seat. But a second wave of Covid upset all calculations.

Yet by the end of fiscal year 2021-22, India’s GDP is expected to return to pre-Covid levels (see graph below). Considering the severity of the second wave of Covid, this is a relief.

K-shaped recovery

The recovery has, however, has changed the shape and fabric of the Indian economy. In technical jargon, this is due to a K-shaped recovery. Simply put, this means that while some sectors / sections of the economy have experienced a very rapid recovery, many are still struggling.

The successful entities are companies that were already in the formal sector and had the financial means to survive repeated blockages and disruptions. In fact, many large companies in the formal economy actually increased their market share during the Covid-19 pandemic and this came at the expense of smaller and weaker companies which were mostly in the industry. informal.

At first glance, this may seem like a minor detail. But in the case of India, this change has massive ramifications. This is because almost 90% of all jobs in India occur in the informal sector. When medium, small and microenterprises (MSMEs) lose out to their counterparts in the formal economy, the same GDP is produced with fewer people in employment.

Indian economy: recovery at a price

Unemployment problems

This explains the bizarre nature of the challenge facing the Indian economy in 2022. As GDP is expected to return to pre-Covid levels – which in itself means two full years lost in terms of jobs that would have otherwise been created, the income that would have been earned and the expenditure that would have been incurred – the same cannot be said of total employment in the country (see graph above).

Not only was the total number of people employed in August 2021 lower than the August 2019 level, but the August 2019 level itself was lower than the August 2016 level, indicating a stagnant employment situation in the region. in recent years.

On the one hand, this means that even easing the situation will take time, because we are talking about tens of millions of unemployed. Second, it forces the government to actively act in a way that tries to cope with the change of change introduced by Covid.

Three, in the interim, so stubbornly high unemployment rates can be a challenge for social cohesion. As we have seen in Haryana and Jharkhand, locals can demand laws prohibiting migrants from other states.

Fall in private consumption

Private consumption spending is the main driver of GDP growth in India. It represents more than 55% of the total GDP. If this component remains weak, a sustainable recovery in GDP will not be possible. To a large extent, it is declining because of the loss of jobs and income. But in part, it also has to do with people wanting to hold back on a rainy day. What if there was another equally bad third wave?

Growing inequalities

The year started with a report from Oxfam India which detailed how Covid was deepening existing inequalities and ended with the World Inequality Report links India as one of the worst performers. “India stands out as a poor and very unequal country, with an affluent elite,” WIR said. While the richest 10% and 1% held respectively 57% and 22% of total national income, the share of the poorest 50% fell to 13%.

Increase in poverty

What makes this trend even more worrying is that higher inequalities are now accompanied by rising levels of poverty. A study by Santosh Mehrotra and Jajati Parida found that between 2012 and 2020 India experienced an increase in the absolute number of poor people – the first such reversal in poverty reduction since independence.

Still high inflation

As a rule of thumb, there is usually a silver lining when the economy fails to create many jobs: the inflation rate remains low. But 2021 has also brought disappointment on this front. Between rapid GDP growth in developed countries, higher crude oil prices and high domestic taxes, not to mention bottlenecks in the supply of various commodities, retail and wholesale inflation is on the rise. remained too high for comfort.

Indian economy: what awaits us in 2022

If 2020 was the year that Covid hit India and 2021 was the year the Indian economy recovered from this shock, then 2022 should be the year that will provide a snapshot of the economy on exit. of the impact of Covid. It can then be compared to the state of the economy in 2019 to determine what has changed and what needs political attention. Five factors likely to play a crucial role in the evolution of the economy in 2022:

OMICRON: The expectation that 2022 will be the first normal year after 2019 depends entirely on the assumption that the Omicron variant, which is considered to be much more infectious than the deadly Delta, causes no loss of life and / or substantial economic disruption. But if so, or if there are other variations emerging as they did in April and May 2021, then all bets are off. If this happens, concerns about lives will once again dominate those about livelihoods. Much can again depend on the timing of the vaccination, including the booster doses.

UNION BUDGET: Assuming there is no new outbreak of Covid, the focus would be on the Union budget, which will be announced on February 1. In times of such upheaval, the budget is more than just an accounting exercise. The government is expected to present its plan to tackle high unemployment, high inflation, widening inequalities and rising poverty levels. But a lot depends on how the government sees the economic situation. Last year, for example, the government cut its budget allocation for health by 10%. Former Chief Statistician of India Pronab Sen said: “The government does not seem to recognize this (K-shaped repeat) in its statements at all.” Sen said the government had misdiagnosed the economy over the past five years, especially since demonetization. “This is what allowed formal sector companies to increase their market share to the detriment of MSMEs. This, in turn, is reflected in both higher tax collections and lower employment levels, he said.

ELECTIONS: The repeal of the three contentious farm laws was another example of how policymaking can be affected by electoral pressures. In this regard, 2022 is a critical year. Not only are there seven State Assembly elections, but there is also the fact that the BJP is in power in six of them. Consider two opposing poles – one where the BJP wins all seven wins and the other where it loses in total – to understand how these elections can impact central government policy choices, especially with the general elections slated for early. 2024.

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APM: Before Covid disrupted the Indian economy, high levels of non-productive assets (NPAs) were one of the biggest stumbling blocks. During Covid, mandatory asset quality reviews were suspended. But when they are relaunched in 2022, Sen said, anyone can guess how high they can jump.

EXTERNAL FACTORS: Several major central banks, including the US Fed, have started tightening monetary policies in light of high inflation in developed countries. This, in turn, will force the Indian RBI to raise interest rates as well. “To a large extent, monetary tightening has already happened in India. It’s just that no one is talking about it. Look at the yields on 10-year government bonds. They went from 5.7% to 6.4% (since May 2020), ”he explains. For Indians, the bright side is that as monetary tightening occurs in the West, crude oil prices could come down.

2022 calendar

  • January 7: First anticipated GDP estimates for the current fiscal year. These would be crucial as they will form the basis of all Union budget calculations.
  • January 31: First revised estimates (FRE) of GDP for the previous fiscal year (2020-2021). Preliminary estimates, announced in May 2021, predicted a 7.3% GDP contraction in FY 21. The FRE will provide greater clarity.
  • February 1st: Union budget.
  • February 28: Second forecast estimate of GDP for the current fiscal year. This will be an update on the FRE announced on January 7 as it would have the GDP growth estimates for the third quarter of the current fiscal year.
  • May 31st : The government will announce (i) GDP estimates for the fourth quarter of 2021-2022; (ii) Provisional GDP estimates for the entire 2021-22 fiscal year.
  • August 31 : Release of GDP estimates for the first quarter of 2022-2023.
  • November 30: GDP estimates for the second quarter of 2022-2023.
  • Monthly outings: Between the 10th and 15th of each month, the government publishes updates of the industrial production, retail inflation and wholesale inflation index.


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