July 2021


Niranjan Rajadhyaksha

(The author is an economist. He is Research Director of the IDFC Institute and a member of the Academic Advisory Board of the Meghnad Desai Academy of Economics)

The coronavirus pandemic has not only left behind millions of dead, but also a trail of economic destruction throughout the world. India has suffered as well. The big question is: Will the on-going economic pain persist through the next decade, or will a strong economic recovery offer hope of sunshine after the storm? Economic forecasting is always a fragile business, more so during events that the world has rarely faced before. What follows is an attempt to detect silver linings to the dark clouds that have dominated the scene since the pandemic began in China.

Let us first count the economic costs of the pandemic. The latest estimates suggest that the size of the Indian economy in the current financial year will be around the same as it was in 2019-20, or the last financial year before the pandemic struck. This means that the Indian economy has, in effect, stagnated for two years because of the pandemic shock.

These economic losses have been borne unequally in India as those living at the bottom of the pyramid have suffered significant income losses because they have either become unemployed or have seen their wages fall. At the same time, large enterprises in the organised sector have managed to weather the storm far better than smaller ones and have perhaps gained market share in some sectors. In sum, people who have been able to work from home have protected their incomes better than those who need to step out of the house to bring home money.

There is another way to look at the same facts. Let us assume that there had been no pandemic and the Indian economy had managed to grow at 6.5% a year in 2020-21 and 2021-22. Then, the size of our economy at the end of the current financial year would have been around $400 billion larger than it will be in reality. In other words, the permanent output loss because of the pandemic is huge – equal to the size of the economy in 1998. It may sound harsh, but one entire year of 1998-level output has disappeared down the sinkhole because of the pandemic.

Large shocks such as the one that the world is facing right now often have a lasting impact and their effects linger even after the rubble is cleared away. Let me give one example that is relevant to India. The ‘Spanish Flu’ ripped through the Indian countryside in 1918, killing an estimated 18 million people in undivided India. Two economic historians, Dave Donaldson and Daniel Keniston, have shown in recent work that the pandemic had a lasting impact.

In the districts where the death toll was very high, the survivors were left with additional agricultural land. This land was quickly put to use by the survivors. The resultant increase in incomes had an interesting cons


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