Page 47 - DHC Budget Book 2021-22 Final

V-Shaped Economic Recovery Due To
Timely Stringent Lockdown
Evidence from the experience of Spanish flu establishes that cities that intervened with lockdowns earlier and more aggressively experience stronger recovery in economic front in the long run. Learning from this experience, India implemented an early and stringent lockdown from late March to May to curb the pace of spread of
COVID-19. With the economy brought to a standstill for two complete months, the inevitable effect was a 23.9 per cent contraction in GDP as compared to previous year’s quarter for India. This contraction was consistent with the stringency of the lockdown (Figure 2). The economy was gradually unlocked since June, 2020 and has experienced a V-shaped recovery (characterized by a quick and sustained recovery) in measures of economic performance after a sharp economic decline since then.
-5 -10 -15 -20 -25 -30
Germany 40.3
Italy 122.7
Brazil 91.7
Mexico 97.6
France 99.2
US 104.5
Spain 108.7
UK 108.4
India 10.8
65 70 75 80 85 90
Intensity of Lockdown
Figure 2: Correlation between Stringency and GDP Contraction during Apr-June, 2020 Source: Compiled from various sources
Note: Bubble size corresponds to number of deaths as on 31st December, 2020; number of deaths per lakh indicated with the bubble
Indian policymakers, backed by evidence, recognized that the lockdown would adversely impact economic activity and disrupt livelihoods. The fiscal policy response of the Government of India to the pandemic was, accordingly, strategized with a step-by-step approach. During the first
two quarters of FY 2020-21, the Government ensured that funds for essential activities were available despite a sharp contraction in revenue receipts. The initial approach was to provide a cushion for the poor and section of society and
to the business sector (especially the MSMEs)
to tide over the distress caused by disruption of economic activity. With the easing of movement and health-related restrictions in the third quarter, the government transited in a calibrated fashion
to support investment and consumption demand through Atmanirbhar 2.0 and 3.0. The timing of stimulus was tuned to the absorptive capacity of the economy, which was affected by the lockdown. The timing of the expenditure push, especially the capital expenditure, after the reduction in health- related curbs, manifests the strategy of stimulating ‘growth’ when it would be most effective (Figure 3).
Content
Economic Survey 2020-21 Basic 45
Q2 GDP Growth rate