THE SYMPTOMS are a peculiar mix. They include sluggishness, general malaise, depression, and an inability to focus or to work. It is sort of like long covid. Except that the victim of this particular form of delayed recovery from the virus is not a person. It is India’s economy.
With at least 2m dead from covid-19, according to The Economist’s estimate of the real toll from the virus, many of them as a result of the fierce second pandemic wave that only waned last month, it may seem no surprise that India is struggling to get back on track. Yet in proportion to its 1.4bn people, that frightening number does not make the country an outlier: its mortality rate is probably similar to those of America or Britain. Where India does stand out among large economies is in how hard its economy has been hammered. As richer countries begin to bounce back, it finds itself stuck with persistent unemployment and inflation, limp demand and falling savings and investment. Many of those troubles were pre-existing conditions—call them comorbidities—made worse by covid. But with India’s vaccination campaign progressing like an ambulance in Mumbai traffic, its path to better health will be longer and more painful than for many others.
Consider the undramatic story of Neeraj Vora, an appliance salesman in Mumbai, India’s financial capital. In the midst of last year’s nation-wide lockdown his salary was cut from 26,000 rupees ($348) a month to 14,000 rupees. This spring his father fell ill with covid. As the cost of treatment mounted, both Mr Vora and a sister broke into their fixed-deposit savings. That proved too little, so he turned to clients whose trust he had earned over the years by going the extra mile, for instance by taking care that a fridge he sold was delivered to a top-floor flat scratch-free. Their goodwill helped him cover the 280,000-rupee medical bill.
Mr Vora’s family is now fine. But his father’s medication still eats 3,000-4,000 rupees a month, which comes on top of the 5,000 rupees he pays in rent and the debts he now owes. “I don’t even understand when the money gets credited and when it disappears,” says Mr Vora, who now never leaves home without mask, gloves and sanitiser. “My family can’t afford for this ever to happen again.”
In the fiscal year that ended on March 31st India’s GDP shrank by 7.3%, more than any other big Asian economy. That was just before the massive second wave hit. Its economic impact may not have been as severe as the long weeks of sudden, national lockdown imposed in 2020, at the start of the crisis. That blow hit India’s poorest cruelly, leaving millions of migrant workers stranded and jobless. But for many, particularly among India’s salaried middle class, the psychological shock of the second round has been harder. While tens of millions have found themselves tipped, like Mr Vora, abruptly down the income ladder, even those more comfortably off have had to dip into savings and put off investments. Bank loans made against gold jewellery, India’s most traditional way of saving, jumped by 82.3% in the fiscal year.
Statistics tell part of the story. According to the State Bank of India (SBI), the country’s largest bank, household debt surged from 32.5% of GDP to 37.3% last fiscal year, even as bank credit, which had grown at an average of more than 20% a year in the 2000s and at an annual average of 12% over the past decade, slowed, growing by an all-time low of just over 5%, with retail credit now accounting for most of the growth (see chart).
A poll of white-collar workers by Grant Thornton, a consulting firm, found that 40% of employees had suffered a cut in total pay last year—and these represent only India’s formal economy, not the estimated 90% of the workforce who are self-employed or work without a contract, and are therefore most vulnerable to sudden shocks. One survey of 3,000 mostly informal workers in Delhi, India’s capital, found that male breadwinners had on average suffered a 39% fall in income in the past year. Of the more than 38,000 respondents to another survey—carried out online, meaning all were rich enough to enjoy internet access—more than three-quarters said they expected their incomes to fall in the current year.
Anecdotal evidence corroborates the grimness. Charities report growing demand for food hand-outs. Many private schools, most of which are cheap and basic rather than fancy, and which educate some 120m children, report falling enrolment despite measures such as cutting back on teacher salaries. A survey of fee-paying schools in one state found that around 3,000 had closed for lack of funds. The All India Mobile Retailers Association, a trade group, says that over 40,000 cellphone shops have shut down since 2019. Sales of motorbikes—India is the world’s biggest two-wheeler market—are stuck at the level of 2014.
There are bright spots, of course. Mumbai’s stock market has performed strongly, and investors have piled into recent IPOs. The very biggest whales, such as billionaires Mukesh Ambani and Gautam Adani, have grown blubberier than ever. Traditional export earners, such as the offshore IT-services and pharmaceutical industries, continue to perform well. Economists predict fairly robust overall growth this year, at least enough to compensate for last year’s debacle.
But the medium-term talk is not of how fast “normal” growth will resume, but of how many years have been lost, and whether “normal” will be in the heady range of 7-8%, such as India achieved in the 2000s, or more like the 3-5% of earlier decades. A recent study by the National Council of Applied Economic Research (NCAER), a think-tank in Delhi, suggests that without a fast-growth strategy India may never compensate for the lost growth, and may never reap the “demographic dividend” of a relatively large workforce with relatively few dependents. Achieving this, the authors say, would take reforms on a scale as sweeping as the opening, 30 years ago, that ended India’s suffocating License Raj. In particular, they emphasise investment in human capital, such as basic education and health care.
India’s government is not unaware of the pressure. In late June it announced a further $85bn, or about 3% of GDP, in stimulus measures, following a nominal $300bn pledged last year. Among other things, it has extended by another five months the supply of free food grains that has kept many families afloat during the crisis. Its earlier measures included shoring up banks and helping small businesses, especially in hard-hit sectors such as tourism. But strangely, in a situation where banks cannot find borrowers, and where manufacturers have excess capacity and so prefer to pocket profits rather than to invest in building capacity, the government has concentrated stubbornly on credit supply. Rather than put more money into consumer pockets and thereby boost demand, as most rich countries have done, it keeps urging banks to make more loans.
In real terms government spending is not expanding, but shrinking. In the quarter to the end of June, state investment in new projects fell by 42% compared with the first three months of the year. NCAER number-crunchers found that even after factoring in bigger allocations in the latest stimulus package, the government’s total expenditure will amount to just 16.3% of GDP, a significant fall from the previous year’s 17.8%.
These small numbers reflect the fact that India remains a poor country. Its government keeps a wary eye on its credit rating, interest rates and inflation—which has indeed crept outside the RBI’s theoretical upper limit of 6%. But if India’s post-covid troubles are due to anything, it is to a legacy of poor choices by its leaders, from the chronic failure to invest in human capital, to shying away from a fuller transition to a truly competitive, open economy, to such costly experiments as a sudden ban on paper currency in 2016. Vivek Kaul, an insightful economic commentator, concludes a recent post with this chastisement: “You construct a house poorly and a storm hits. Now you are drenched due to a leaking roof. Is the storm the only one to blame?”