The impact of the COVID-19 pandemic in India has resulted in severe disruptions to industrial production and consumption spending during April and May - Photo: Special

JAKARTA (TheInsiderStories) – The impact of the COVID-19 pandemic in India has resulted in severe disruptions to industrial production and consumption spending during April and May. The severe negative impact is expected to result in significant contraction in GDP in the second quarter (2Q) of 2020, resulting in a recession in the 2020 – 2021 financial year with GDP expected to contract by 6.3 percent year on year (YoY).

However, as lockdown conditions have been progressively eased, early signs of recovery have already been evident in the most recent economic data. The IHS Markit Purchasing Managers’ surveys for India showed that economic momentum improved in June, reflecting the easing of COVID-19 related restrictions during May and June.

“IHS Markit forecast that the Indian economy will rebound as the impact of the pandemic recedes, with improving economic growth momentum in the second half of 2020 and positive GDP growth of 6.7 percent in the 2021-22 financial year,” said Rajiv Biswas, Asia Pacific Chief Economist at IHS Markit.

Total foreign direct investment (FDI) into India has remained buoyant despite the negative short-term shocks from the pandemic. FDI by technology firms in the first seven months of 2020 has already reached around US$17 billion, boosted by the $10 billion new investment into India announced by Google in mid-July.

Facebook, Amazon and Foxconn are among the other global technology firms that have committed large new investments into India this year. Biswas stated, “A major boost to investor confidence in the Indian medium-term economic outlook has come from new FDI into India announced during 2020 by US technology companies like Google, Facebook and Amazon.”

In the medium-term, he rated, the economic outlook for India remains favorable, supported by a number of key growth drivers. An important positive factor for India is its large and fast-growing middle class, which is helping to drive consumer spending.

Total Indian consumer spending is forecast to grow by 42 percent between 2020 and 2025, measured in US Dollar terms at constant prices.

“The digital transformation of India that is currently underway is expected to accelerate the growth of e-commerce, changing the retail consumer market landscape over the next decade. This is attracting leading global multinationals in technology and e-commerce to the Indian market,” he added.

IHS Markit forecasts that India’ consumption expenditure will double from $1.6 trillion in 2020 to $3.2 trillion by 2030, measured in constant prices, boosted by strong average annual GDP growth and rapidly rising per capita incomes for the country’ fast-growing middle-class urban households.

“By 2030, 1.1 billion Indians will have internet access, more than doubling from the estimated 500 million internet users in 2020,” said Biswas.

The rapid growth of e-commerce and the shift to 4G and 5G smartphone technology will boost home-grown unicorns like online e-commerce platform Snapdeal, logistics startup Delhivery and the fast-growing online grocer BigBasket, whose e-sales have surged during the pandemic. he concluded.

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