A Long Road to Recovery
The COVID-19 outbreak and the subsequent lockdown have caused demand, supply, and financial shocks to India’s economy, all at once. The negative effects were partially mitigated by some prompt policy actions by the central bank and the government, and signs of recovery are already visible. The CEIC Leading Indicator rose to 52.7 points in May and to 80.1 points in June. However, for some industries, the pandemic has posed much larger challenges. There has been a direct implication on income and employment, as many small businesses have been forced to shut down permanently. Reduced capacities in industries and offices have forced companies to lay off employees, and in many cases, migrant workers have returned back to their hometowns as a result of fear of the disease and uncertainty of the future. More importantly, a large portion of the workforce in India is employed through informal channels, which makes the damage to the economy even more severe. Even though the actual CEIC Leading Indicator is on a recovery path, the trajectory for the smoothed indicator remains downward. The reasoning behind this phenomenon is that there is severe economic damage and a more pronounced recovery is needed to get the economy back to its potential.