The sharp drop in the stock markets, the prospect of a prolonged lockdown to prevent the spread of the Covid-19 virus among global populations, the massive job losses everywhere, and the collapse of demand for all products barring everyday staples and necessities should force us to think the unthinkable: that India could be on the brink of its first real, full-blown recession.

We have talked loosely about “recession” off and on, but India has never had a drop in real output for a long, long time; we have had growth recessions, where growth rates fall, but overall gross domestic output (GDP) has rarely fallen in absolute terms.

Our last true recession was in 1979. The four recession (or negative growth) years since Independence happened once in the late 1950s, once in 1965 (-2.6 per cent), once more seven years later in 1972 (-0.5 per cent) and finally in 1979 (a massive -5.23 per cent).

Since then we have had growth recessions and low growth years, but almost never negative growth, except in the order quarter or two.

Those days are upon us. It is obviously too early to forecast growth given the kind of uncertainties facing us on Covid-19 and how long its negative effects will devastate the health of the economy, but one cannot rule out a recession for at least a quarter or two in fiscal 2020-21.

The government will surely start spending counter-cyclically in the coming weeks, which will revive growth for a while. But given the weak state of banks, the deteriorating state of the fisc, the still over-leveraged corporate sector and the shaky cash flows of most micro, small and medium enterprises (MSMEs), any concessions on the monetary or fiscal side cannot continue endlessly.

The Covid-19 scare is going to change the Indian economy in fundamental ways that we did not envisage earlier.

First, the Covid-19 scare will hasten India’s shift towards a digital future, where most growth will be led by technology and services and not manufacturing or agriculture.

Second, the job market is going to polarise even further, with huge demand for high-skill jobs, declining demand for middle-skill jobs, and high growth in part-time and gig jobs. The era of full-time, good quality jobs is coming to an end. When jobs move to the home, companies will cut wages and outsource more, creating gigs rather than full time employment.

Covid-19 will accelerate this trend as most jobs are already being done out of home. This trend is irreversible even after Covid-19 is behind us.

Third, growth in general will slow down as India’s total fertility rate falls below replacement levels, the world deglobalises, and debt-fuelled growth tapers down even after the immediate pandemic fears abate.