As the world’s second-most populous country, dealing with COVID-19 was always going to be an uphill struggle for India. It currently has the third highest number of cases in the world, over 2 million, and the fifth highest number of deaths. Though the numbers are significantly lower in per capita terms, the cases are concentrated in a few economically important states. 25% of residents in Delhi are estimated to have had the virus.
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Without the same sort of automatic stabilisers in place as exist in developed countries, those struggling with the impact of lockdowns have been reliant entirely on new government initiatives for support. Though progress has been made in recent years, this has been made more difficult by the fact that most Indians have little economic relationship with the state. Together with an underdeveloped healthcare system and the social stigma attached with contracting the virus, Indian consumers have been reluctant to go out and spend. Consumer sentiment is the worst it has been since Prime Minister Modi took office in May 2014. According to the Retailers Association of India, retail sales are around 40% of what they were at this time last year, despite the reopening which is underway.
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India’s fiscal response to the crisis has centred mainly around loan guarantees for small and medium-sized businesses. This reduces the need for collateral, allowing the firms to access funding to survive through a period of lower demand. However, years of increases in the amount of non-performing loans have made Indian banks cautious. At close to 10%, India has one of the world’s highest ratios of non-performing assets of any major economy. Furthermore, the guarantee only covers 75% of the value up front, with the rest only being paid once the government has recovered the debt or the loan term has expired. Slow growth in consumer credit has been linked with the economy’s sluggish performance in recent years, and the government’s new measures have thus far failed to provide a boost.
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As with all countries, India’s economic recovery will depend largely on its ability to control the virus. The evidence so far is that it will not be able to do so. Even once a vaccine is ready, India faces a huge logistical challenge in getting it to its citizens.
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