India’s GDP is expected to contract more than 5% in the current fiscal year. An intersection during a state-imposed lockdown in Kolkata on Monday.
Photo: dibyangshu sarkar/Agence France-Presse/Getty ImagesIndia’s economy shrank a record 23.9% last quarter as a nationwide lockdown to combat the coronavirus and fear of the fast-spreading pandemic strangled spending.
Gross domestic product took a beating in the April-through-June quarter compared with the same quarter a year earlier, according to government data released Monday. That is the worst decline among all the major world economies that have announced GDP figures for the quarter, according to the latest tally from the Organization for Economic Cooperation and Development. It is also India’s worst decline since 1996, when it started reporting quarterly numbers.
“This year we are facing an extraordinary situation,” Finance Minister Nirmala Sitharaman said at a government event last week. “We are facing an act of God.”
India’s economy—the third largest in Asia and fifth largest in the world—has been hard hit by the pandemic. India’s GDP is expected to contract more than 5% in the current fiscal year, which goes through next March. If that happens it would be its worst performance in decades.
New Delhi restaurant owner Nishant Bhatia said he had to shut down one of his two restaurants and lay off more than half of his 50 employees as India’s coronavirus lockdown kept his customers at home.
The lockdown ended but his customers didn’t return. He said he will now have to close down what remains of his business, which has survived every other downturn in the past 22 years.
“People are still scared to eat out because no one wants to put their lives at risk,” he said. “Hardly any money is coming in and I have no savings left to cushion the coronavirus shock.”
India’s economy had already been struggling before the pandemic took hold. It slowed to an 11-year low in the last fiscal year. That was a steep slide from being the fastest-growing large economy just a few years earlier.
Today the South Asian nation is outperforming every other country in the growth of Covid-19. It is spreading faster in India than anywhere else in the world, with the highest number of new daily infections. It is third-highest in terms of cumulative cases after the U.S. and Brazil.
India has more than 3.5 million confirmed infections and 60,000 deaths from the virus. However, with more than 75,000 new cases a day recently, India is expected to surpass Brazil and the U.S., each of which have recently had less than 50,000 new cases a day.
Indian authorities imposed a stringent nationwide lockdown in late March. It was the largest in the world as it covered the country’s entire population of 1.3 billion people. New Delhi started easing some restrictions in May, which led to a bounce in economic activity. Still, spending on everything from phones to cars to fast food has remained far below prepandemic levels.
A coronavirus-testing health center New Delhi on Monday.
Photo: adnan abidi/ReutersThe country’s average unemployment rate was 19.3% in the April-to-June quarter, according to the Centre for Monitoring the Indian Economy. The unemployment rate climbed to over 23% in April and May then, after the end of the lockdown, it improved to 11% in June.
This challenging period for employees, as well as small-business owners, could douse spending in India for years by shaking people’s faith in the future, said Sonal Verma, Nomura’s chief economist for India.
“The trend growth in consumption will be lower” than the last decade, she said. “You now have a consumer who is more cautious because of the uncertainty.”
Most economists expect the economy to struggle for the rest of the fiscal year started April 1, as the pandemic penetrates rural areas and hinders consumer confidence and purchasing power.
Phone shops say they are seeing fewer new phone buyers and a lot more customers requesting repairs to old phones. Uncertainty about jobs and incomes has persuaded more people to try to save money by making their smartphones last longer, said Parveen Sharma, an employee at a shop in eastern Delhi.
“People don’t have money to buy new phones anymore,” he said.
Policy makers have revved up fiscal and monetary stimulus but it hasn’t been enough, economists said. New Delhi has announced more than $250 billion in economic packages to help the economy and the Reserve Bank of India has cut interest rates repeatedly.
Mobility data from Google show that despite the end of most of the country’s lockdown measures and New Delhi’s efforts to revive confidence, activity around retail recreational locations in India remains 40% below the level seen before the coronavirus started to spread early this year.
Activity in the U.S. is down only 13% from pre-Covid levels. In Brazil—a developing countries with a large number of cases, like India—mobility around such locations is down only 19%, according to the Google Mobility Report.
Every quarter this fiscal year should record negative growth, said Anagha Deodhar, an economist at ICICI Securities. The virus is expected to continue spreading through the country and keeping companies and consumers from confidently spending soon.
“The virus is fast moving to rural geographies and the hot spots in megacities are getting worse,” she said. “That will make India’s road to recovery longer.”
—Krishna Pokharel contributed to this article.
Write to Vibhuti Agarwal at vibhuti.agarwal@wsj.com and Eric Bellman at eric.bellman@wsj.com
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