Economic outlook

India suffered its worst economic contraction in 2020 because the COVID-19 pandemic prompted a long and strict nationwide lockdown. This disproportionately affected the country’s small enterprises and informal sector, where 90% of India’s workforce is employed. The IMF estimates real GDP shrank more than 10% in 2020, the third steepest decline after Spain and Italy, and the sharpest fall among emerging markets and developing countries.

Since restrictions began easing in June, India’s economy and labour market have shown signs of recovery. The IMF expects a return to growth of more than 8% in 2021. Risks to the recovery, both to the upside and downside, hinge on the path of the virus locally and internationally. Beyond-COVID-related risks, a slower pace of recovery in the informal sector implies the coming recovery may be a jobless one; that can lead to lower per-capita income, higher inequality, pressure for more government spending and social tensions.


The IMF estimates GDP per capita remained around US$2,000 in 2020 and forecast it to reach US$2,800 by 2025. The impact of the pandemic, however, has been severe for the informal sector, where most of India’s labor force is employed. The World Bank indicates that half of India’s population already live close to the poverty line. Income and job losses increase their risk of slipping back into poverty. The pandemic has also exacerbated the vulnerabilities for traditionally excluded groups, such as youth and women. Recognizing these challenges, authorities are reworking their social safety programs to provide greater protection for informal workers and the urban poor in addition to their ongoing support for rural workers.