India’s economy is expected to see its worst recession in history because of the covid-19 pandemic. Following the worryingly deep contraction of 23.9% in the June quarter, economists have cut their forecasts and most now expect a contraction of at least 10-11% for FY21. That is a massive 20 trillion erosion of output in a year, which the economy will have to claw back before it can boast of any real growth.

In the alphabet soup of economic predictions that has dominated public discourse, the recovery has been predicted to be V-shaped, K-shaped, W-shaped and everything in between.

What’s clear is that the recession has affected everyone, but not equally. Hence, the recovery won’t be evenly distributed as well.

India GDP growth rate for July-September 2019 falls to 4.5%

For instance, manufacturing is picking up pace, but services are still contracting in a big way, reflected in the respective purchasing managers’ indices.

Likewise, the rural markets are recovering faster than urban, driven by agriculture.

Pranjul Bhandari, chief economist at HSBC, terms India a “two-speed" economy, where industries experience unevenly distributed rates of growth.

“The trouble with two-speed economies is that they don’t last long. Ultimately, they need to converge into one. What we need to really see is where the two speeds meet," said Bhandari in a telephonic interview.

The worry is that the sectors that are recovering faster may be pulled back by those that still languish.

Needless to say, policy responses targeted towards struggling sectors could avoid this outcome.

Most analysts recommend another fiscal stimulus by the government, given that monetary policy seems to be constrained by inflation in the short term.

But public finances are a sore sight, as seen by the standoff between the Centre and states over compensation for the goods and services tax (GST).

Also, the government will risk queering the pitch for the Reserve Bank of India (RBI) if it amps up its mammoth borrowing from the market.

The bond market is already showing signs of fatigue, with three bond sales undersubscribed so far and risk-free sovereign yields rising.

What the government needs to do is monetize its assets and holdings in public enterprises.

“We really hope that the government takes this route instead of more borrowing, which could disrupt markets and interest rates," said Bhandari. “In fact, asset monetization is really an asset swap. The government sells some old holdings and invests in new projects."

Ananth Narayan, associate professor of finance at SP Jain Institute of Management and Research, believes that the government should not stop at this. “We need deeper real sector reforms. We have made it very difficult to do business by way of our land laws and labour rules," he said.

Sure, these are not short-term fixes, and may even show visible improvements only in the medium or long term.

“But that does not mean we should not do them," said Narayan.

HSBC predicts erosion of India’s potential growth rate to 5% from 6% due to the pandemic. Banks hamstrung by bad loans are seen as the biggest constraint to this potential economic growth.

The Indian economy needs to grow by at least 8% to generate enough jobs for its youth. “We need sustainable growth for the coming years. We cannot ensure this by just giving credit. Sustainable growth requires real sector reforms," says Narayan.

India could be the worst-hit emerging market economy in the current fiscal year. But to focus on a recession year already beyond repair would be crying over spilt milk.

Indeed, Credit Suisse analysts believe that 75% of the gross domestic product, or GDP, loss is already water under the bridge.

Recall that seven years ago, India was part of the fragile five economies in the wake of the taper tantrum. The country was able to extricate itself from that group with deft policy responses. It can do an encore.

The time to begin reforms was yesterday.