Spotlight: India’s Economic Woes Deepen

The pandemic is showing no signs of abating in India as the country reported a fifth consecutive day of more than 90,000 confirmed daily new cases on September 14; over 80,000 deaths have been confirmed. The country is nearing 5 million confirmed cases and almost 70 percent of new deaths are concentrated in Andhra Pradesh, Delhi, Karnataka, Maharashtra, and Tamil Nadu. Despite rising cases, restrictions are being eased across the country to revive economic growth. Parliament began its monsoon session on Monday; at least 25 lawmakers tested positive ahead of the session.

That the curve has not flattened despite the imposition of a strict lockdown means that India’s economy is under duress – the economy contracted by 23.9 percent during the April to June 2020 time period, the sharpest decline on record.

Economic analysts have revised their targets downwards as cases continue to rise across the country: Moody’s revised its economic growth target from -4 percent to -11.5 percent; Fitch expects the economy to contract by 11.8 percent; and Goldman Sachs predicts a 14.8 percent contraction. According to Crisil, an Indian subsidiary of S&P Global, the pandemic will inflict a “permanent” economic loss of 13 percent of GDP compared to 3 percent of GDP for the rest of Asia-Pacific; the nominal figure for this loss is estimated to be about $400 billion.

This mounting economic pain is compounding the humanitarian crisis faced by millions of Indian citizens, particularly migrant laborers who have lost their jobs since the pandemic began. Over 21 million salary-earning jobs have been lost since the pandemic began. Given that growth is not expected to recover in the coming months, job creation is unlikely to occur, leading to a protracted unemployment crisis in the country.

India’s economy was already weakening before the onset of the pandemic, mainly due to what some have called the government’s “policy adventurism.” To encourage a rapid recovery, Prime Minister Modi’s government will have to marshal a large fiscal stimulus in the coming months. But with the pandemic still raging and fiscal resources already stretched, the economic prospects for India continue to look bleak.