Indian economy is now expected to see a faster turnaround given the impending rollout of vaccine, increased mobility and less disruptions to business operations as the economy opens up but a lot will also depend on the upcoming Budget for 2021-22 to steer its course.

India, which had in 2019 overtaken the UK to become the fifth-largest economy in the world, was knocked off course somewhat due to the carnage that the pandemic and the ensuing strict lockdown unleashed — businesses were shut, consumption slumped, investments took a hit and jobs were lost.

The combined effect being that the economy got relegated to the sixth spot in 2020.

The Budget for the next fiscal starting April 2021 that Finance Minister Nirmala Sitharaman will present a month from now will be the starting point for picking up the pieces after the economic destruction.

The government’s spending plans, particularly on infrastructure and social sectors as well as relief to sections hit by the pandemic and lockdown, will dictate the pace of recovery, analysts said.

India’s economy had been losing momentum even ahead of the shock delivered by the COVID-19 crisis. The rate of GDP growth sank to a more than ten-year low of 4.2 per cent in 2019, down from 6.1 per cent the previous year.

The pandemic bought a human and an economic catastrophe for India, with nearly 1.5 lakh deaths. Though the deaths per million are significantly lower than in Europe and the US, the economic impact had been much more severe.

GDP in April-June was 23.9 per cent below its 2019 level, indicating that nearly a quarter of the country’s economic activity was wiped out by the drying up of global demand and the collapse of domestic demand that accompanied the series of strict national lockdowns.

And a 7.5 per cent decline in GDP in the following quarter pushed Asia’s third-largest economy into an unprecedented recession.

As restrictions were gradually lifted, many parts of the economy were able to spring back into action although output remains well below the pre-pandemic levels.

While agriculture with bountiful harvest has been a driver of India’s economic recovery, the government’s stimulus spending in response to the COVID-19 crisis has been significantly more restrained than most other large economies.

Sitharaman announced a total stimulus package of Rs 29.87 lakh crore, or 15 per cent of GDP. That equals the total spending envisaged in the government’s budget for the year to March. But the actual fiscal cost has been estimated at around 1.3 per cent of GDP, including 0.7 per cent for the incentive programme whose expense is spread over five years.

Most saw this spending as grossly inadequate.

The limited cash spending was on account of the government not generating enough revenue to even pay states for their share of GST. Revenue collections were hurt by the lockdown.

Yet, high-frequency indicators, including exports, automobile sales, energy consumption and manufacturing output have shown an uptick, which some have seen as an indication of a ‘V’ shaped recovery.

Rating agencies and analysts have raised their expectations of GDP growth in fiscal to March 2021 with RBI predicting a small positive growth in the January-March quarter.

According to Dun & Bradstreet, only 30 per cent of active businesses in India were still disrupted at the end of November 2020 compared to 95 per cent in April 2020 when the nationwide lockdown was imposed.

“Continued government support will be crucial to sustain and propel growth momentum – which has picked up,” said Arun Singh, Global Chief Economist, Dun & Bradstreet. “During the first six months of the fiscal year (April to October 2020), government expenditure was 48.6 per cent of its budgeted estimate. We expect the remaining budgeted expenditure to be spend with other off-budget spending.”

This along with the execution of various policy initiatives will propel growth momentum in H2 FY21.

However, credit disbursement to the industry has not picked up yet and this remains a cause of concern.

“This does not bode well for the industry at a time when domestic demand has not yet stabilised and external demand remains weak,” he said.

India Ratings and Research (Ind-Ra) said policymaking is facing the twin challenges in collating reliable high-frequency data and interpreting the same as the impact of the COVID-19 pandemic is proving to be an unprecedented disaster.

An appropriate understanding based on reliable data is critical to ensure effective policy intervention, it said, adding a low base in current fiscal will make even a moderate improvement in the first couple of quarters of next financial year as decent year-on-year growth.

“The projected GDP growth does indicate that the worst is over, but it still does not indicate whether the economy has recovered the lost ground and/ or surpassed it,” it said, adding the economy will be able to just recover the lost ground in FY22 and surpass the FY20 GDP level in a meaningful way only in FY23.