State of the Economy 2020-21: A Macro View | Economic Survey & Government Reports - UPSC PDF Download

 Page 1


CHAPTER
01
State of the Economy 2020-21:  
A Macro View
“Doing the right things at the right time, is the rope
which binds the wealth, making it boundless.”
– Thirukkural, Chapter 49, Verse 482.
The year 2020 threw at the world a bedlam of novel COVID-19 virus, threatening all that 
was taken for granted –mobility, safety, and a normal life itself. This, in turn, posed the most 
formidable economic challenge to India and to the world in a century. Bereft of a cure or a 
vaccine, public health policy became central to tackling this all-pervasive crisis. The imperative 
of flattening the disease curve was entwined with the livelihood cost of an imminent recession, 
which emanated from the restrictions in economic activities from the lockdown required to contain 
the pandemic. This inherent trade-off led to the policy dilemma of “lives versus livelihoods”.
Governments and central banks across the world deployed a range of policy tools to support their 
economies such as lowering key policy rates, quantitative easing measures, loan guarantees, 
cash transfers and fiscal stimulus measures. India recognised the disruptive impact of the 
pandemic and charted its own unique path amidst dismal projections by several international 
institutions of the spread in the country given its huge population, high population density and 
an overburdened health infrastructure. 
As shown in Chapter 1 of V olume 1, the intense lockdown implemented at the start of the pandemic 
– when India had only a 100 confirmed cases – characterized India’ s unique response in several 
ways. First, the policy response was driven by the findings from both epidemiological and 
economic research. Specifically, faced with enormous uncertainty about the potential spread of 
the pandemic, the policy implemented the Nobel-prize winning research in Hansen and Sargent 
(2001) that recommends a policy focussed on minimising losses in a worst case scenario. 
Faced with an unprecedented pandemic, loss of scores of human lives captured this worst case 
scenario. Moreover , epidemiological research highlighted the importance of an initial, stringent 
lockdown especially in a country where high population density posed difficulties with respect 
to social distancing. Therefore, India’ s policy humane response that focused on saving human 
lives, recognised that the short-term pain of an initial, stringent lockdown would lead to long-
term gains both in the lives saved and in the pace of the economic recovery. The scores of lives 
that have been saved and the V-shaped economic recovery that is being witnessed – due to the 
causal impact of the initial lockdown – bear testimony to India’ s boldness in taking short-term 
pain for long-term gain. 
Second, India recognised that the pandemic impacts both supply and demand in the economy. 
The slew of reforms – again unique amidst all major economies – were implemented to ensure 
that the supply-side disruptions, which were inevitable during the lockdown, are minimised in 
the medium to long-run. The demand side policy reflected the understanding that aggregate 
Page 2


CHAPTER
01
State of the Economy 2020-21:  
A Macro View
“Doing the right things at the right time, is the rope
which binds the wealth, making it boundless.”
– Thirukkural, Chapter 49, Verse 482.
The year 2020 threw at the world a bedlam of novel COVID-19 virus, threatening all that 
was taken for granted –mobility, safety, and a normal life itself. This, in turn, posed the most 
formidable economic challenge to India and to the world in a century. Bereft of a cure or a 
vaccine, public health policy became central to tackling this all-pervasive crisis. The imperative 
of flattening the disease curve was entwined with the livelihood cost of an imminent recession, 
which emanated from the restrictions in economic activities from the lockdown required to contain 
the pandemic. This inherent trade-off led to the policy dilemma of “lives versus livelihoods”.
Governments and central banks across the world deployed a range of policy tools to support their 
economies such as lowering key policy rates, quantitative easing measures, loan guarantees, 
cash transfers and fiscal stimulus measures. India recognised the disruptive impact of the 
pandemic and charted its own unique path amidst dismal projections by several international 
institutions of the spread in the country given its huge population, high population density and 
an overburdened health infrastructure. 
As shown in Chapter 1 of V olume 1, the intense lockdown implemented at the start of the pandemic 
– when India had only a 100 confirmed cases – characterized India’ s unique response in several 
ways. First, the policy response was driven by the findings from both epidemiological and 
economic research. Specifically, faced with enormous uncertainty about the potential spread of 
the pandemic, the policy implemented the Nobel-prize winning research in Hansen and Sargent 
(2001) that recommends a policy focussed on minimising losses in a worst case scenario. 
Faced with an unprecedented pandemic, loss of scores of human lives captured this worst case 
scenario. Moreover , epidemiological research highlighted the importance of an initial, stringent 
lockdown especially in a country where high population density posed difficulties with respect 
to social distancing. Therefore, India’ s policy humane response that focused on saving human 
lives, recognised that the short-term pain of an initial, stringent lockdown would lead to long-
term gains both in the lives saved and in the pace of the economic recovery. The scores of lives 
that have been saved and the V-shaped economic recovery that is being witnessed – due to the 
causal impact of the initial lockdown – bear testimony to India’ s boldness in taking short-term 
pain for long-term gain. 
Second, India recognised that the pandemic impacts both supply and demand in the economy. 
The slew of reforms – again unique amidst all major economies – were implemented to ensure 
that the supply-side disruptions, which were inevitable during the lockdown, are minimised in 
the medium to long-run. The demand side policy reflected the understanding that aggregate 
2 Economic Survey 2020-21   V olume 2
demand, especially that for non-essential items, reflects precautionary motives to save, which 
inevitably remains high when overall uncertainty is high. Therefore, during the initial months of 
the pandemic when uncertainty was high and lockdowns imposed economic restrictions, India 
did not waste precious fiscal resources in trying to pump up discretionary consumption. Instead, 
the policy focused on ensuring that all essentials were taken care of, which included direct 
benefit transfers to the vulnerable sections and the world’ s largest food subsidy programme 
targeting 80.96 crore beneficiaries. Government of India also launched Emergency Credit Line 
Guarantee Scheme to provide much needed relief to stressed sectors by helping entities sustain 
employment and meet liabilities. 
During the unlock phase, when uncertainty declined and the precautionary motive to save 
subsided, on the one hand, and economic mobility increased, on the other hand, India has ramped 
up its fiscal spending. A favorable monetary policy ensured abundant liquidity and immediate 
relief to debtors via temporary moratoria, while unclogging monetary policy transmission. 
India’ s demand-side policy, thus, underscores the idea that pressing on the accelerator while 
the brakes are clamped only wastes scarce fuel. 
India has been able to avoid the second wave while ably managing to flatten the epidemiological 
curve, with its caseload peaking in mid-September. As shown in Chapter 1 of Volume I, the 
initial stringent lockdown was critical to saving lives and the V-shaped economic recovery. The 
continuous drop in daily cases and fatalities bespeak India’ s escape from a Sisyphus fate of back-
and-forth policy responses, enabling continual unlocking of the economy. As anticipated, while the 
lockdown resulted in a 23.9 per cent contraction in GDP in Q1, the recovery has been a V-shaped 
one as seen in the 7.5 per cent decline in Q2 and the recovery across all key economic indicators.  
Starting July, a resilient V-shaped recovery is underway, as demonstrated by the recovery in GDP 
growth in Q2 after the sharp decline in Q1, a sustained resurgence in high frequency indicators 
such as power demand, E-way bills, GST collection, steel consumption, etc. The reignited inter 
and intra state movement and record-high monthly GST collections have marked the unlocking of 
industrial and commercial activity. A sharp rise in commercial paper issuances, easing yields, and 
sturdy credit growth to MSMEs portend revamped credit flows for enterprises to survive and grow. 
Imports contracted more sharply than exports, with Forex reserves rising to cover 18 months of 
imports. Inflation, mainly driven by food prices, remained above 6 per cent for much of the year; 
the softening in December suggests easing of supply-side constraints.
India’ s GDP is estimated to contract by 7.7 per cent in FY2020-21, composed of a sharp 15.7 per 
cent decline in first half and a modest 0.1 per cent fall in the second half. Sector-wise, agriculture 
has remained the silver lining while contact-based services, manufacturing, construction were 
hit hardest, and have been recovering steadily. Government consumption and net exports have 
cushioned the growth from diving further down. 
The V-shaped economic recovery is supported by the initiation of a mega vaccination drive 
with hopes of a robust recovery in the services sector. Together, prospects for robust growth in 
consumption and investment have been rekindled with the estimated real GDP growth for FY 
2021-22 at 11 per cent. India’ s mature policy response to this “once-in-a-century” crisis thus 
provides important lessons for democracies to avoid myopic policymaking and demonstrates the 
significant benefits of focusing on long-term gains.
1.1 The year 2020 witnessed unrivalled turmoil with the novel COVID-19 virus and the 
resultant pandemic emerging as the biggest threat to economic growth in a century. The World 
Health Organization (WHO) declared COVID-19 a ‘Public Health Emergency of International 
Concern’ (PHEIC) on 30th January, 2020 and advised that all countries should be prepared 
for containment, including active surveillance, early detection, isolation and case management, 
Page 3


CHAPTER
01
State of the Economy 2020-21:  
A Macro View
“Doing the right things at the right time, is the rope
which binds the wealth, making it boundless.”
– Thirukkural, Chapter 49, Verse 482.
The year 2020 threw at the world a bedlam of novel COVID-19 virus, threatening all that 
was taken for granted –mobility, safety, and a normal life itself. This, in turn, posed the most 
formidable economic challenge to India and to the world in a century. Bereft of a cure or a 
vaccine, public health policy became central to tackling this all-pervasive crisis. The imperative 
of flattening the disease curve was entwined with the livelihood cost of an imminent recession, 
which emanated from the restrictions in economic activities from the lockdown required to contain 
the pandemic. This inherent trade-off led to the policy dilemma of “lives versus livelihoods”.
Governments and central banks across the world deployed a range of policy tools to support their 
economies such as lowering key policy rates, quantitative easing measures, loan guarantees, 
cash transfers and fiscal stimulus measures. India recognised the disruptive impact of the 
pandemic and charted its own unique path amidst dismal projections by several international 
institutions of the spread in the country given its huge population, high population density and 
an overburdened health infrastructure. 
As shown in Chapter 1 of V olume 1, the intense lockdown implemented at the start of the pandemic 
– when India had only a 100 confirmed cases – characterized India’ s unique response in several 
ways. First, the policy response was driven by the findings from both epidemiological and 
economic research. Specifically, faced with enormous uncertainty about the potential spread of 
the pandemic, the policy implemented the Nobel-prize winning research in Hansen and Sargent 
(2001) that recommends a policy focussed on minimising losses in a worst case scenario. 
Faced with an unprecedented pandemic, loss of scores of human lives captured this worst case 
scenario. Moreover , epidemiological research highlighted the importance of an initial, stringent 
lockdown especially in a country where high population density posed difficulties with respect 
to social distancing. Therefore, India’ s policy humane response that focused on saving human 
lives, recognised that the short-term pain of an initial, stringent lockdown would lead to long-
term gains both in the lives saved and in the pace of the economic recovery. The scores of lives 
that have been saved and the V-shaped economic recovery that is being witnessed – due to the 
causal impact of the initial lockdown – bear testimony to India’ s boldness in taking short-term 
pain for long-term gain. 
Second, India recognised that the pandemic impacts both supply and demand in the economy. 
The slew of reforms – again unique amidst all major economies – were implemented to ensure 
that the supply-side disruptions, which were inevitable during the lockdown, are minimised in 
the medium to long-run. The demand side policy reflected the understanding that aggregate 
2 Economic Survey 2020-21   V olume 2
demand, especially that for non-essential items, reflects precautionary motives to save, which 
inevitably remains high when overall uncertainty is high. Therefore, during the initial months of 
the pandemic when uncertainty was high and lockdowns imposed economic restrictions, India 
did not waste precious fiscal resources in trying to pump up discretionary consumption. Instead, 
the policy focused on ensuring that all essentials were taken care of, which included direct 
benefit transfers to the vulnerable sections and the world’ s largest food subsidy programme 
targeting 80.96 crore beneficiaries. Government of India also launched Emergency Credit Line 
Guarantee Scheme to provide much needed relief to stressed sectors by helping entities sustain 
employment and meet liabilities. 
During the unlock phase, when uncertainty declined and the precautionary motive to save 
subsided, on the one hand, and economic mobility increased, on the other hand, India has ramped 
up its fiscal spending. A favorable monetary policy ensured abundant liquidity and immediate 
relief to debtors via temporary moratoria, while unclogging monetary policy transmission. 
India’ s demand-side policy, thus, underscores the idea that pressing on the accelerator while 
the brakes are clamped only wastes scarce fuel. 
India has been able to avoid the second wave while ably managing to flatten the epidemiological 
curve, with its caseload peaking in mid-September. As shown in Chapter 1 of Volume I, the 
initial stringent lockdown was critical to saving lives and the V-shaped economic recovery. The 
continuous drop in daily cases and fatalities bespeak India’ s escape from a Sisyphus fate of back-
and-forth policy responses, enabling continual unlocking of the economy. As anticipated, while the 
lockdown resulted in a 23.9 per cent contraction in GDP in Q1, the recovery has been a V-shaped 
one as seen in the 7.5 per cent decline in Q2 and the recovery across all key economic indicators.  
Starting July, a resilient V-shaped recovery is underway, as demonstrated by the recovery in GDP 
growth in Q2 after the sharp decline in Q1, a sustained resurgence in high frequency indicators 
such as power demand, E-way bills, GST collection, steel consumption, etc. The reignited inter 
and intra state movement and record-high monthly GST collections have marked the unlocking of 
industrial and commercial activity. A sharp rise in commercial paper issuances, easing yields, and 
sturdy credit growth to MSMEs portend revamped credit flows for enterprises to survive and grow. 
Imports contracted more sharply than exports, with Forex reserves rising to cover 18 months of 
imports. Inflation, mainly driven by food prices, remained above 6 per cent for much of the year; 
the softening in December suggests easing of supply-side constraints.
India’ s GDP is estimated to contract by 7.7 per cent in FY2020-21, composed of a sharp 15.7 per 
cent decline in first half and a modest 0.1 per cent fall in the second half. Sector-wise, agriculture 
has remained the silver lining while contact-based services, manufacturing, construction were 
hit hardest, and have been recovering steadily. Government consumption and net exports have 
cushioned the growth from diving further down. 
The V-shaped economic recovery is supported by the initiation of a mega vaccination drive 
with hopes of a robust recovery in the services sector. Together, prospects for robust growth in 
consumption and investment have been rekindled with the estimated real GDP growth for FY 
2021-22 at 11 per cent. India’ s mature policy response to this “once-in-a-century” crisis thus 
provides important lessons for democracies to avoid myopic policymaking and demonstrates the 
significant benefits of focusing on long-term gains.
1.1 The year 2020 witnessed unrivalled turmoil with the novel COVID-19 virus and the 
resultant pandemic emerging as the biggest threat to economic growth in a century. The World 
Health Organization (WHO) declared COVID-19 a ‘Public Health Emergency of International 
Concern’ (PHEIC) on 30th January, 2020 and advised that all countries should be prepared 
for containment, including active surveillance, early detection, isolation and case management, 
3 State of the Economy 2020-21: A Macro View
contact tracing, and prevention of onward spread. The exponential rise in the number of daily 
cases compelled the WHO to title this outbreak a pandemic on 11th March, 2020 - within a 
period of three months of its emergence. The contagion is still spreading with over 10 crore 
confirmed cases around the globe and over 2 lakh deaths. The ensuing shock has been extremely 
unconventional in terms of its size and uncertainty, with its impact dependent on unpredictable 
factors like intensity of lockdowns, extent of supply chain and financial market disruptions 
alongside societal response to the associated public health measures. The pandemic has been 
unique in its wide-ranging effects on almost every section of the economy and the society.
SPREAD OF THE PANDEMIC 
Global Spread
1.2 Since its first outbreak in Wuhan, China, COVID-19 has infected all continents, including 
Antarctica (in December, 2020), and more than 220 countries. The health shock, though global, 
has transmitted through different trajectories across countries in terms of total infections, 
mortalities, and recoveries. In the initial stages of the pandemic, the Advanced Economies (AE) 
of North American and West European region were disproportionately impacted with more than 
70 per cent of the total cases and total deaths (Figure 1). The pandemic quickly intensified 
in number of Emerging Market and Developing Economies (EMDEs) such as Brazil, India, 
Mexico, Russia and Turkey– that now constitute around 50 per cent of total cases and total 
deaths. In recent months, amidst a repeat wave, AEs—particularly the United States and several 
Euro area countries—have accounted for an increasing share of cases; in EMDEs, outbreaks in 
the Latin America and the Caribbean, and Europe and Central Asia regions have continued to 
grow. It is evident that AEs have been affected harder by the pandemic.
Figure 1: Trend in World-wide Spread of COVID-19
1?(a): Share in Cumulative Confirmed Cases 1?(b): Share in Cumulative Deaths
0%
20%
40%
60%
80%
100%
1/Jan
1/Feb
1/Mar
1/Apr
1/May
1/Jun
1/Jul
1/Aug
1/Sep
1/Oct
1/Nov
1/Dec
AE China EMDE(excluding China)
0%
20%
40%
60%
80%
100%
1/Jan
1/Feb
1/Mar
1/Apr
1/May
1/Jun
1/Jul
1/Aug
1/Sep
1/Oct
1/Nov
1/Dec
AE China EMDE(excluding China)
Source: WHO, Survey Calculation
1.3 The spread of the pandemic has been in waves as is evident in Figure 2. AEs were 
experiencing their third waves, both in terms of cases and deaths, at the end of the year while 
EMDEs (excluding China and India) were facing their second waves. China experienced the 
first wave of cases in February, 2020 after which it has been able to control the spread. India 
experienced its first wave till September, 2020 after which it has been able to effectively manage 
the spread – avoiding the second wave as on date. 
Page 4


CHAPTER
01
State of the Economy 2020-21:  
A Macro View
“Doing the right things at the right time, is the rope
which binds the wealth, making it boundless.”
– Thirukkural, Chapter 49, Verse 482.
The year 2020 threw at the world a bedlam of novel COVID-19 virus, threatening all that 
was taken for granted –mobility, safety, and a normal life itself. This, in turn, posed the most 
formidable economic challenge to India and to the world in a century. Bereft of a cure or a 
vaccine, public health policy became central to tackling this all-pervasive crisis. The imperative 
of flattening the disease curve was entwined with the livelihood cost of an imminent recession, 
which emanated from the restrictions in economic activities from the lockdown required to contain 
the pandemic. This inherent trade-off led to the policy dilemma of “lives versus livelihoods”.
Governments and central banks across the world deployed a range of policy tools to support their 
economies such as lowering key policy rates, quantitative easing measures, loan guarantees, 
cash transfers and fiscal stimulus measures. India recognised the disruptive impact of the 
pandemic and charted its own unique path amidst dismal projections by several international 
institutions of the spread in the country given its huge population, high population density and 
an overburdened health infrastructure. 
As shown in Chapter 1 of V olume 1, the intense lockdown implemented at the start of the pandemic 
– when India had only a 100 confirmed cases – characterized India’ s unique response in several 
ways. First, the policy response was driven by the findings from both epidemiological and 
economic research. Specifically, faced with enormous uncertainty about the potential spread of 
the pandemic, the policy implemented the Nobel-prize winning research in Hansen and Sargent 
(2001) that recommends a policy focussed on minimising losses in a worst case scenario. 
Faced with an unprecedented pandemic, loss of scores of human lives captured this worst case 
scenario. Moreover , epidemiological research highlighted the importance of an initial, stringent 
lockdown especially in a country where high population density posed difficulties with respect 
to social distancing. Therefore, India’ s policy humane response that focused on saving human 
lives, recognised that the short-term pain of an initial, stringent lockdown would lead to long-
term gains both in the lives saved and in the pace of the economic recovery. The scores of lives 
that have been saved and the V-shaped economic recovery that is being witnessed – due to the 
causal impact of the initial lockdown – bear testimony to India’ s boldness in taking short-term 
pain for long-term gain. 
Second, India recognised that the pandemic impacts both supply and demand in the economy. 
The slew of reforms – again unique amidst all major economies – were implemented to ensure 
that the supply-side disruptions, which were inevitable during the lockdown, are minimised in 
the medium to long-run. The demand side policy reflected the understanding that aggregate 
2 Economic Survey 2020-21   V olume 2
demand, especially that for non-essential items, reflects precautionary motives to save, which 
inevitably remains high when overall uncertainty is high. Therefore, during the initial months of 
the pandemic when uncertainty was high and lockdowns imposed economic restrictions, India 
did not waste precious fiscal resources in trying to pump up discretionary consumption. Instead, 
the policy focused on ensuring that all essentials were taken care of, which included direct 
benefit transfers to the vulnerable sections and the world’ s largest food subsidy programme 
targeting 80.96 crore beneficiaries. Government of India also launched Emergency Credit Line 
Guarantee Scheme to provide much needed relief to stressed sectors by helping entities sustain 
employment and meet liabilities. 
During the unlock phase, when uncertainty declined and the precautionary motive to save 
subsided, on the one hand, and economic mobility increased, on the other hand, India has ramped 
up its fiscal spending. A favorable monetary policy ensured abundant liquidity and immediate 
relief to debtors via temporary moratoria, while unclogging monetary policy transmission. 
India’ s demand-side policy, thus, underscores the idea that pressing on the accelerator while 
the brakes are clamped only wastes scarce fuel. 
India has been able to avoid the second wave while ably managing to flatten the epidemiological 
curve, with its caseload peaking in mid-September. As shown in Chapter 1 of Volume I, the 
initial stringent lockdown was critical to saving lives and the V-shaped economic recovery. The 
continuous drop in daily cases and fatalities bespeak India’ s escape from a Sisyphus fate of back-
and-forth policy responses, enabling continual unlocking of the economy. As anticipated, while the 
lockdown resulted in a 23.9 per cent contraction in GDP in Q1, the recovery has been a V-shaped 
one as seen in the 7.5 per cent decline in Q2 and the recovery across all key economic indicators.  
Starting July, a resilient V-shaped recovery is underway, as demonstrated by the recovery in GDP 
growth in Q2 after the sharp decline in Q1, a sustained resurgence in high frequency indicators 
such as power demand, E-way bills, GST collection, steel consumption, etc. The reignited inter 
and intra state movement and record-high monthly GST collections have marked the unlocking of 
industrial and commercial activity. A sharp rise in commercial paper issuances, easing yields, and 
sturdy credit growth to MSMEs portend revamped credit flows for enterprises to survive and grow. 
Imports contracted more sharply than exports, with Forex reserves rising to cover 18 months of 
imports. Inflation, mainly driven by food prices, remained above 6 per cent for much of the year; 
the softening in December suggests easing of supply-side constraints.
India’ s GDP is estimated to contract by 7.7 per cent in FY2020-21, composed of a sharp 15.7 per 
cent decline in first half and a modest 0.1 per cent fall in the second half. Sector-wise, agriculture 
has remained the silver lining while contact-based services, manufacturing, construction were 
hit hardest, and have been recovering steadily. Government consumption and net exports have 
cushioned the growth from diving further down. 
The V-shaped economic recovery is supported by the initiation of a mega vaccination drive 
with hopes of a robust recovery in the services sector. Together, prospects for robust growth in 
consumption and investment have been rekindled with the estimated real GDP growth for FY 
2021-22 at 11 per cent. India’ s mature policy response to this “once-in-a-century” crisis thus 
provides important lessons for democracies to avoid myopic policymaking and demonstrates the 
significant benefits of focusing on long-term gains.
1.1 The year 2020 witnessed unrivalled turmoil with the novel COVID-19 virus and the 
resultant pandemic emerging as the biggest threat to economic growth in a century. The World 
Health Organization (WHO) declared COVID-19 a ‘Public Health Emergency of International 
Concern’ (PHEIC) on 30th January, 2020 and advised that all countries should be prepared 
for containment, including active surveillance, early detection, isolation and case management, 
3 State of the Economy 2020-21: A Macro View
contact tracing, and prevention of onward spread. The exponential rise in the number of daily 
cases compelled the WHO to title this outbreak a pandemic on 11th March, 2020 - within a 
period of three months of its emergence. The contagion is still spreading with over 10 crore 
confirmed cases around the globe and over 2 lakh deaths. The ensuing shock has been extremely 
unconventional in terms of its size and uncertainty, with its impact dependent on unpredictable 
factors like intensity of lockdowns, extent of supply chain and financial market disruptions 
alongside societal response to the associated public health measures. The pandemic has been 
unique in its wide-ranging effects on almost every section of the economy and the society.
SPREAD OF THE PANDEMIC 
Global Spread
1.2 Since its first outbreak in Wuhan, China, COVID-19 has infected all continents, including 
Antarctica (in December, 2020), and more than 220 countries. The health shock, though global, 
has transmitted through different trajectories across countries in terms of total infections, 
mortalities, and recoveries. In the initial stages of the pandemic, the Advanced Economies (AE) 
of North American and West European region were disproportionately impacted with more than 
70 per cent of the total cases and total deaths (Figure 1). The pandemic quickly intensified 
in number of Emerging Market and Developing Economies (EMDEs) such as Brazil, India, 
Mexico, Russia and Turkey– that now constitute around 50 per cent of total cases and total 
deaths. In recent months, amidst a repeat wave, AEs—particularly the United States and several 
Euro area countries—have accounted for an increasing share of cases; in EMDEs, outbreaks in 
the Latin America and the Caribbean, and Europe and Central Asia regions have continued to 
grow. It is evident that AEs have been affected harder by the pandemic.
Figure 1: Trend in World-wide Spread of COVID-19
1?(a): Share in Cumulative Confirmed Cases 1?(b): Share in Cumulative Deaths
0%
20%
40%
60%
80%
100%
1/Jan
1/Feb
1/Mar
1/Apr
1/May
1/Jun
1/Jul
1/Aug
1/Sep
1/Oct
1/Nov
1/Dec
AE China EMDE(excluding China)
0%
20%
40%
60%
80%
100%
1/Jan
1/Feb
1/Mar
1/Apr
1/May
1/Jun
1/Jul
1/Aug
1/Sep
1/Oct
1/Nov
1/Dec
AE China EMDE(excluding China)
Source: WHO, Survey Calculation
1.3 The spread of the pandemic has been in waves as is evident in Figure 2. AEs were 
experiencing their third waves, both in terms of cases and deaths, at the end of the year while 
EMDEs (excluding China and India) were facing their second waves. China experienced the 
first wave of cases in February, 2020 after which it has been able to control the spread. India 
experienced its first wave till September, 2020 after which it has been able to effectively manage 
the spread – avoiding the second wave as on date. 
4 Economic Survey 2020-21   V olume 2
Figure 2: COVID -19 Infection Waves
2 (a): Confirmed Cases
0
10
20
30
40
50
60
70
80
0
20
40
60
80
1 00
1 20
J a n Fe b Ma r A pr Ma y J un J ul A ug Se p O ct N ov D ec
New cases (Thousands)
New cases (Lakhs)
AEs EMDEs (excluding China and India) India China (RHS)
Second Wave
Third Wave
First Wave
First Wave
Second Wave
2?(b): Deaths
0
5
10
15
20
25
30
0
20
40
60
80
1 00
1 20
1 40
1 60
1 80
2 00
J a n Fe b Ma r A pr Ma y J un J ul A ug Se p O ct N ov D ec
New Deaths (Hundreds)
New deaths (Thousands)
AEs EMDEs (excluding China and India) India China (RHS)
First Wave
Second Wave
Third Wave
First Wave
Second Wave
Source: Survey Calculations using data from WHO
Note: data is as on 31
st
 December, 2020
1.4 AEs witnessed higher confirmed cases and deaths on per capita basis too as compared to EMDEs 
(Figure 3). The third wave in AEs has proven to be more lethal with fatalities exceeding by 5.3 times 
compared to the second wave and surpassing the level during the first wave in December itself.
Figure 3: Per Capita COVID-19 Caseload across Countries
3?(a): Cases per Lakh 3?(b): Deaths per Lakh
Source: Survey Calculations using data from WHO
Note: Data is as on 31
st
 December, 2020
Page 5


CHAPTER
01
State of the Economy 2020-21:  
A Macro View
“Doing the right things at the right time, is the rope
which binds the wealth, making it boundless.”
– Thirukkural, Chapter 49, Verse 482.
The year 2020 threw at the world a bedlam of novel COVID-19 virus, threatening all that 
was taken for granted –mobility, safety, and a normal life itself. This, in turn, posed the most 
formidable economic challenge to India and to the world in a century. Bereft of a cure or a 
vaccine, public health policy became central to tackling this all-pervasive crisis. The imperative 
of flattening the disease curve was entwined with the livelihood cost of an imminent recession, 
which emanated from the restrictions in economic activities from the lockdown required to contain 
the pandemic. This inherent trade-off led to the policy dilemma of “lives versus livelihoods”.
Governments and central banks across the world deployed a range of policy tools to support their 
economies such as lowering key policy rates, quantitative easing measures, loan guarantees, 
cash transfers and fiscal stimulus measures. India recognised the disruptive impact of the 
pandemic and charted its own unique path amidst dismal projections by several international 
institutions of the spread in the country given its huge population, high population density and 
an overburdened health infrastructure. 
As shown in Chapter 1 of V olume 1, the intense lockdown implemented at the start of the pandemic 
– when India had only a 100 confirmed cases – characterized India’ s unique response in several 
ways. First, the policy response was driven by the findings from both epidemiological and 
economic research. Specifically, faced with enormous uncertainty about the potential spread of 
the pandemic, the policy implemented the Nobel-prize winning research in Hansen and Sargent 
(2001) that recommends a policy focussed on minimising losses in a worst case scenario. 
Faced with an unprecedented pandemic, loss of scores of human lives captured this worst case 
scenario. Moreover , epidemiological research highlighted the importance of an initial, stringent 
lockdown especially in a country where high population density posed difficulties with respect 
to social distancing. Therefore, India’ s policy humane response that focused on saving human 
lives, recognised that the short-term pain of an initial, stringent lockdown would lead to long-
term gains both in the lives saved and in the pace of the economic recovery. The scores of lives 
that have been saved and the V-shaped economic recovery that is being witnessed – due to the 
causal impact of the initial lockdown – bear testimony to India’ s boldness in taking short-term 
pain for long-term gain. 
Second, India recognised that the pandemic impacts both supply and demand in the economy. 
The slew of reforms – again unique amidst all major economies – were implemented to ensure 
that the supply-side disruptions, which were inevitable during the lockdown, are minimised in 
the medium to long-run. The demand side policy reflected the understanding that aggregate 
2 Economic Survey 2020-21   V olume 2
demand, especially that for non-essential items, reflects precautionary motives to save, which 
inevitably remains high when overall uncertainty is high. Therefore, during the initial months of 
the pandemic when uncertainty was high and lockdowns imposed economic restrictions, India 
did not waste precious fiscal resources in trying to pump up discretionary consumption. Instead, 
the policy focused on ensuring that all essentials were taken care of, which included direct 
benefit transfers to the vulnerable sections and the world’ s largest food subsidy programme 
targeting 80.96 crore beneficiaries. Government of India also launched Emergency Credit Line 
Guarantee Scheme to provide much needed relief to stressed sectors by helping entities sustain 
employment and meet liabilities. 
During the unlock phase, when uncertainty declined and the precautionary motive to save 
subsided, on the one hand, and economic mobility increased, on the other hand, India has ramped 
up its fiscal spending. A favorable monetary policy ensured abundant liquidity and immediate 
relief to debtors via temporary moratoria, while unclogging monetary policy transmission. 
India’ s demand-side policy, thus, underscores the idea that pressing on the accelerator while 
the brakes are clamped only wastes scarce fuel. 
India has been able to avoid the second wave while ably managing to flatten the epidemiological 
curve, with its caseload peaking in mid-September. As shown in Chapter 1 of Volume I, the 
initial stringent lockdown was critical to saving lives and the V-shaped economic recovery. The 
continuous drop in daily cases and fatalities bespeak India’ s escape from a Sisyphus fate of back-
and-forth policy responses, enabling continual unlocking of the economy. As anticipated, while the 
lockdown resulted in a 23.9 per cent contraction in GDP in Q1, the recovery has been a V-shaped 
one as seen in the 7.5 per cent decline in Q2 and the recovery across all key economic indicators.  
Starting July, a resilient V-shaped recovery is underway, as demonstrated by the recovery in GDP 
growth in Q2 after the sharp decline in Q1, a sustained resurgence in high frequency indicators 
such as power demand, E-way bills, GST collection, steel consumption, etc. The reignited inter 
and intra state movement and record-high monthly GST collections have marked the unlocking of 
industrial and commercial activity. A sharp rise in commercial paper issuances, easing yields, and 
sturdy credit growth to MSMEs portend revamped credit flows for enterprises to survive and grow. 
Imports contracted more sharply than exports, with Forex reserves rising to cover 18 months of 
imports. Inflation, mainly driven by food prices, remained above 6 per cent for much of the year; 
the softening in December suggests easing of supply-side constraints.
India’ s GDP is estimated to contract by 7.7 per cent in FY2020-21, composed of a sharp 15.7 per 
cent decline in first half and a modest 0.1 per cent fall in the second half. Sector-wise, agriculture 
has remained the silver lining while contact-based services, manufacturing, construction were 
hit hardest, and have been recovering steadily. Government consumption and net exports have 
cushioned the growth from diving further down. 
The V-shaped economic recovery is supported by the initiation of a mega vaccination drive 
with hopes of a robust recovery in the services sector. Together, prospects for robust growth in 
consumption and investment have been rekindled with the estimated real GDP growth for FY 
2021-22 at 11 per cent. India’ s mature policy response to this “once-in-a-century” crisis thus 
provides important lessons for democracies to avoid myopic policymaking and demonstrates the 
significant benefits of focusing on long-term gains.
1.1 The year 2020 witnessed unrivalled turmoil with the novel COVID-19 virus and the 
resultant pandemic emerging as the biggest threat to economic growth in a century. The World 
Health Organization (WHO) declared COVID-19 a ‘Public Health Emergency of International 
Concern’ (PHEIC) on 30th January, 2020 and advised that all countries should be prepared 
for containment, including active surveillance, early detection, isolation and case management, 
3 State of the Economy 2020-21: A Macro View
contact tracing, and prevention of onward spread. The exponential rise in the number of daily 
cases compelled the WHO to title this outbreak a pandemic on 11th March, 2020 - within a 
period of three months of its emergence. The contagion is still spreading with over 10 crore 
confirmed cases around the globe and over 2 lakh deaths. The ensuing shock has been extremely 
unconventional in terms of its size and uncertainty, with its impact dependent on unpredictable 
factors like intensity of lockdowns, extent of supply chain and financial market disruptions 
alongside societal response to the associated public health measures. The pandemic has been 
unique in its wide-ranging effects on almost every section of the economy and the society.
SPREAD OF THE PANDEMIC 
Global Spread
1.2 Since its first outbreak in Wuhan, China, COVID-19 has infected all continents, including 
Antarctica (in December, 2020), and more than 220 countries. The health shock, though global, 
has transmitted through different trajectories across countries in terms of total infections, 
mortalities, and recoveries. In the initial stages of the pandemic, the Advanced Economies (AE) 
of North American and West European region were disproportionately impacted with more than 
70 per cent of the total cases and total deaths (Figure 1). The pandemic quickly intensified 
in number of Emerging Market and Developing Economies (EMDEs) such as Brazil, India, 
Mexico, Russia and Turkey– that now constitute around 50 per cent of total cases and total 
deaths. In recent months, amidst a repeat wave, AEs—particularly the United States and several 
Euro area countries—have accounted for an increasing share of cases; in EMDEs, outbreaks in 
the Latin America and the Caribbean, and Europe and Central Asia regions have continued to 
grow. It is evident that AEs have been affected harder by the pandemic.
Figure 1: Trend in World-wide Spread of COVID-19
1?(a): Share in Cumulative Confirmed Cases 1?(b): Share in Cumulative Deaths
0%
20%
40%
60%
80%
100%
1/Jan
1/Feb
1/Mar
1/Apr
1/May
1/Jun
1/Jul
1/Aug
1/Sep
1/Oct
1/Nov
1/Dec
AE China EMDE(excluding China)
0%
20%
40%
60%
80%
100%
1/Jan
1/Feb
1/Mar
1/Apr
1/May
1/Jun
1/Jul
1/Aug
1/Sep
1/Oct
1/Nov
1/Dec
AE China EMDE(excluding China)
Source: WHO, Survey Calculation
1.3 The spread of the pandemic has been in waves as is evident in Figure 2. AEs were 
experiencing their third waves, both in terms of cases and deaths, at the end of the year while 
EMDEs (excluding China and India) were facing their second waves. China experienced the 
first wave of cases in February, 2020 after which it has been able to control the spread. India 
experienced its first wave till September, 2020 after which it has been able to effectively manage 
the spread – avoiding the second wave as on date. 
4 Economic Survey 2020-21   V olume 2
Figure 2: COVID -19 Infection Waves
2 (a): Confirmed Cases
0
10
20
30
40
50
60
70
80
0
20
40
60
80
1 00
1 20
J a n Fe b Ma r A pr Ma y J un J ul A ug Se p O ct N ov D ec
New cases (Thousands)
New cases (Lakhs)
AEs EMDEs (excluding China and India) India China (RHS)
Second Wave
Third Wave
First Wave
First Wave
Second Wave
2?(b): Deaths
0
5
10
15
20
25
30
0
20
40
60
80
1 00
1 20
1 40
1 60
1 80
2 00
J a n Fe b Ma r A pr Ma y J un J ul A ug Se p O ct N ov D ec
New Deaths (Hundreds)
New deaths (Thousands)
AEs EMDEs (excluding China and India) India China (RHS)
First Wave
Second Wave
Third Wave
First Wave
Second Wave
Source: Survey Calculations using data from WHO
Note: data is as on 31
st
 December, 2020
1.4 AEs witnessed higher confirmed cases and deaths on per capita basis too as compared to EMDEs 
(Figure 3). The third wave in AEs has proven to be more lethal with fatalities exceeding by 5.3 times 
compared to the second wave and surpassing the level during the first wave in December itself.
Figure 3: Per Capita COVID-19 Caseload across Countries
3?(a): Cases per Lakh 3?(b): Deaths per Lakh
Source: Survey Calculations using data from WHO
Note: Data is as on 31
st
 December, 2020
5 State of the Economy 2020-21: A Macro View
SPREAD OF PANDEMIC IN INDIA
1.5 India imposed a stringent nation-wide lockdown during the initial phase of the 
pandemic in March-April, 2020, followed by gradual unlocking and phasing out of the 
containment measures. India crossed its peak in mid-September with 11.12 lakh active cases 
on 17
th
 September, 2020 and 97,860 daily new cases on 16th September, 2020 (Figure 4?(a)). 
Subsequently, new cases have moved down to less than 16,000 cases per day in January, 
2021 despite the festive season and onset of the winter season. The confirmed cases in India 
have touched more than 1.06 crore, representing around 11 per cent of the world’s total case 
load. India’s share in new cases load globally has drastically come down from 31 per cent 
in September, 2020 to 4 per cent in December, 2020. The pace of spread has been controlled 
with doubling time of cases rising from 12 days in May, 2020 to 249 days in December, 2020 
(Figure 4?(b)). 
Figure 4: Spread of COVID-19 in India
4?(a): Total Active Cases 4?(b): Doubling Time 
0%
5%
10%
15%
20%
25%
0
2
4
6
8
10
12
1/Apr
16/May
30/Jun
14/Aug
28/Sep
12/Nov
27/Dec
Active Cases (in Lakh)
Active Total Cases
Daily new case growth rate (RHS)
3
7
12
19
20
27
39
80
143
249
0 50 100 150 200 250 300
Ma r
A pr
Ma y
Jun
Jul
A ug
Se p
Oct
N ov
Dec
No of Days
Source: Data accessed from https://www.covid19india.org/, Ministry of Health and Family Welfare (MoH&FW)
Note: Doubling rate is defined as ln2/ ln (1 + r), where r is the average of last seven days of growth in cumulative cases.
1.6 The initial spread of pandemic was limited primarily to western and northern zones of 
the country, which contributed 42 and 22 per cent respectively (Figure 5?(a)). On the other 
hand, a sharp rise in share of Southern zone was witnessed since July, 2020 with the zone 
adding more than one-third of the new cases per month on an average. The eastern and 
central regions each constituted 10 per cent of the total cases respectively during the year. 
All zones, barring northern region, experienced a single wave of infection till December 
(Figure 5?(b)). The festive season during October and November led to a second wave of 
infections in the northern region. In per capita terms, the southern zone had a maximum 
caseload at 1226 cases per lakh followed by western zone at 1124 cases per lakh; the 
eastern region had the lowest caseload at 342 cases per lakh as on 31
st
 December, 2020  
(Figure 5?(c)).
Peak in mid-
September