India Faces Economic Recession as 2021 Approaches

By Remitbee - Oct 15, 2020

The pandemic has led to an unsuccessful year for the Indian economy. Despite the recent stimulus projections, high unemployment rates, and even higher COVID numbers have left the a country with plummeting numbers across the market.

The Reserve Bank of India (RBI) conducted a round of Consumer Confidence Survey’s in September 2020 which revealed that for the third consecutive month, India’s consumers have a bleak outlook for the future of the country’s overall economic stability.

The consumer confidence index was at a low of 49.9% in September compared to 53.8% in July. “More respondents reported curtailment in both overall and essential spending during the past year” according to the survey.

The RBI’s monetary policy committee (MPC) held a three-day meeting on Friday with a cooperative stance hoping to ease economic tension. The committee reported that India’s capital gains are expected to decline by 9.6% by 2021, a much bigger hit than the previously estimated loss of 3.2%.

The MPC report also states that the “GDP declined by an unprecedented 23.9% in Q1:20-21 and domestic economic activity remains badly hit by the unrelenting pandemic.” This calls for drastic measures in 2021 in order to prevent major inflation.

Based on the consumer price index (CPI) inflation was at 3.28% in August of last year. The MPC aims to keep inflation rates within a 4% target with a band of +/- 2% throughout policy rate changes.

The repo rate (the rate at which RBI lends to commercial banks) will be left unchanged at 4% according to RBI Governor Das, but economists predict inflation to increase past the band of the central bank’s 6% target.

Commodity prices are expected to increase and more households are expecting general inflation to rise over the remainder of 2020 and beginning of 2021 according to the RBI Household Inflation Expectation Survey.

With prices spiking in household supplies, transportation, and health care, there is not a lot of faith left in the Indian economy, but with festival season approaching, the country’s the government hopes consumer spending will play a large hand in their process to improve numbers.

India’s COVID cases as of October reach 7.31 million, and the country is expected to have the highest numbers globally. On Wednesday Health Minister Harsh Vardhan said “it becomes the responsibility of every citizen to not let our guard down and follow COVID-19 appropriate the behavior to curb the spread of the infection.”

In order to recover from the pandemic safely, updated precautions are necessary as restrictions loosen for festival season and more jobs open up in the restaurant and entertainment industry. Das says that the country’s “focus must shift from containment to revival” as pay cuts and layoffs have already weakened the country’s overall employment rates. The Centre for Monitoring the Indian Economy (CMIE) based out of Mumbai explains that the country’s unemployment rate fell from 23.5% in April 2020 to 6.8% by October 2020.

“The negative trend in the employment rate since June 21st is a source of anxiety and implies that it could fall further,” says the CMIE. With a declining labor force and high unemployment rates, India still lacks a comprehensive plan for closing the employment gap in 2021.

91% of Indian professionals have admitted they have to learn new skills to do their job effectively and 82% agree that college education hasn’t adequately prepared students with the skills needed to succeed in the current job market. 76% believe artificial intelligence and automation will take over their jobs within the next 5 years.

Udemy India Managing Director Irwin Anand says that “there is an underlying current of anxiety, with as many as three-quarters of workers in India responding that they feel personally affected by the skills gap.”

The future of the Indian economy is uncertain; inflation and high unemployment rates are causing distress across a country already suffering from high COVID numbers. India’s health officials have warned about the potential for the virus to spread during festival season as the next 2 and a half months will be crucial for the safety of citizens and the economy.

By Surina Nath





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