Page 419 - ES 2020-21_Volume-1-2 [28-01-21]

46 Economic Survey 2020-21 Volume 2

1.57 It is evident from the above analysis that the economy was, as expected, adversely impacted
by the unprecedented crisis caused by the pandemic in the first quarter of FY 2020-21. With gradual
unlocking and able support of macro-economic policies, the economy has steadily rebounded
to pre-pandemic levels. Data on high-frequency indicators suggest growing convergence with
previous year’s activity levels. The sharp contraction of the economy in first half of the year is
expected to be covered by broad-based resurgent growth in second half of the year.

1.58 Lockdowns and other restrictions needed to address the public health crisis, together with
spontaneous reductions in economic activity by many consumers and producers, have constituted
an unprecedented combination of adverse shocks to global economic activity. Beyond its short-
term impact, deep recessions triggered by the pandemic have a risk of leading to hysteresis.
While the several seminal reforms will help in reducing the possibility of hysteresis, the recovery
would be regarded as having avoided hysteresis when the economy regains the pre-COVID
output path and is back on its trajectory of potential growth (assuming no COVID).
1.59 The global economy, including India, has been set back in time by the pandemic induced
crisis. In the five years before 2020-21, Indian economy grew at an average growth of 6.7 per
cent. In the year 2021-22, a sharp recovery of real GDP growth of 10-12 per cent is expected
based on a low base effect and inherent strengths of the economy. It is assumed that the economy
grows at its trend growth rate of 6.5 per cent in 2022-23 and 7.0 per cent in 2023-24 aided by
the structural reforms. If two scenarios of 12 per cent growth and 10 per cent growth in 2021-
22 are envisaged, India would be 91.5 per cent and 90 per cent below the trend level of output
respectively by 2023-24 (Figure 46).

Figure 46: Scenarios for India’s GDP Return to its Trend Path

Source: Survey Calculations using data from NSO
Note: Real GDP in 2007-08 and 2019-20 have been indexed to 100

1.60 Government recognised this potential ‘hysteresis’ effect of the pandemic on Indian
economy and has, therefore, undertaken a comprehensive reform programme. The structural
reforms and the policy push under the Atmanirbhar Bharat Mission are aimed at strengthening