How different is the Covid-19 crisis from previous recessions?

India’s GDP contracted sharper than other advanced economies in the first quarter of fiscal 2021. It shrunk 23.9 per cent year-on-year in the April-June quarter, the most when compared to the US (-9.5 per cent), the UK (-20.4 per cent), France (-13.8 per cent) and China (+3.2 per cent).

But how deep will be the impact of the Covid-induced crisis when compared to the recessions in the past?

A recession is typically defined as a phenomenon where there are two successive quarters with negative growth rate – growth of the economy has been negative in the first quarter of FY21 and is expected to contract in Q2 also, according to economists.

“India has, for the first time in Q1, registered negative growth rate ever since quarterly data has been published. It is likely that Q2 will also be negative,” said Madan Sabnavis, Chief Economist, CARE Ratings, adding: “This recession or slowdown is different because for the first time in history it was caused when the government was forced to close down the economy for around two months to begin with, which was, hence, man-made.”

Rajani Sinha, Chief Economist and National Director – Research at Knight Frank India, said there are both supply-side and demand-side constraints this time, and unlike the 2009 crisis, which primarily impacted the financial sector, this recession is across all sectors.

“This time, even before the calamity hit us, the economy growth was already slowing down,” Sinha explained specifically about the situation in India, adding: “There were a lot of problems already that the economy was going through and then we were hit by the crisis, so it is going to be that much more difficult for the economy to revive.”

When we analysed the quantum of impact across sectors during the past recessions, data from a Crisil report released in May this year showed that the agriculture segment took a hit more than non-agriculture segments in 1957-58 and 1965-66.

On the contrary, in the Covid-induced recession this year, non-agriculture sectors are forecast to face the blow more than the agriculture sector.

Commenting on how deep the impact will be on different economic fronts this fiscal, Sabnavis said the agriculture sector should be insulated to an extent, provided the virus does not increase infections and hinder harvest and sale.

He added that while manufacturing will revive as unlock unfolds, the impact will be the deepest in the services sector (hotels, tourism, entertainment, aviation), where several of them are not operating yet and will take at least another four months to come even close to 30 to 40 per cent of normal levels.

Previous recessions

Across the world, the situation is no different. Over the past few months, several supply chains were disrupted and many industries were brought to a standstill. Companies introduced pay cuts or laid off employees to stay afloat. In fact, the unemployment rate in India in August was as high as 8.35 per cent, and across the world, in the US, it surged to 10.2 per cent in July, and in Turkey it shot up to 14 per cent in May.

Data from a World Bank Report released in June suggest that this pandemic-induced recession will result in the global per capita GDP shrinking 6.2 per cent, the deepest global recession since 1946.

Lingering uncertainty

Though economic activities have resumed in India in a phased manner and the degree of negativity in various growth parameters such as the IIP and PMI numbers has become lower, infections continue to spread in the country, making things very uncertain.

Experts said that consumer expenditure will pick up as soon as people get visibility on when the infection will be controlled, and investments will then pick up.

“The longer this crisis drags on, the deeper will be the pain….because that will lead to more companies finding it difficult to sustain, more jobs being lost and more difficult for the economy to get back on its feet,” said Knight Frank’s Sinha

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