Just before the onset of the pandemic, India was struggling to get back to its status of being a fast-growing economy among emerging countries. The GDP growth for 2019-20 stood at 4 percent. The pandemic inflicted a severe lock down, creating supply and demand disruptions. For 2 consecutive quarters in FY 20-21 (FY refers to financial year in India starting from April, to March of the next calendar year), the GDP growth rate fell (contraction). The fall was drastic in the first quarter of FY 2021 by nearly 24 percent. Several factors were responsible for it. Consumption drastically fell because of a stringent lock down and piling up of inventories, dampened investments. Industries shed labour, and reverse migration led to a massive fall in production, and created huge joblessness, with unemployment spiking to 24.57 percent in May 2020. The second quarter too had negative 7.5 percent GDP growth. A year and a half since the onset of the COVID-19 pandemic, the global economy is poised to stage its most robust post-recession recovery. However, it is interesting to examine the story of India. The first quarter of FY 2022(April-June calendar year 2021), saw a positive GDP growth of 20.1 percent. In June of 2021, IIP moved to 13.6 percent compared to June 2020, when it was -34.7 percent (negative 3.7). “The decadal low-interest rates, modest current account deficits, job market exhibiting positive growth, revenge buying, increase in retail sales backed by business optimism, and collections under the goods and services tax (GST) have been robust. All these were responsible for this GDP growth spurt. Very recently, the government announced a cut in excise duty on petrol and diesel, and that will spur up consumption. So, while the economy is picking up pace, it is yet to cover a lot of ground to reach pre-pandemic levels. Investments not picking up is a big dampener with business capacity utilisation levels low, at around 70 percent. Chunky capital investments will be avoided by most players. It has hence to be seen whether consumption induces investment demand, or investment demand induces consumption, since the causality will decide the shape of business cycle .

Based on the case study answer the following questions

a) Bring out the different phases of the business cycle described above with a diagram and identify the leading and lagging indicators in the economy. 

b) What is the difference when GDP increases due to investment inducing consumption, compared to, consumption inducing investments? What are the two powerful economic concepts that is responsible for differing impact of each causality? 

c) Explain the different shapes of business cycles that have been seen globally.

Answer rating: 100% (QA)

a The different phases of the business cycle are as follows 1 Prepandemic India was struggling to get back to its status of being a fastgrowing econom... View the full answer