India’s Economy Is Healing but Battered by Covid-19 Waves
India’s economy is growing at a record pace but still digging out from one of the deepest recessions to hit any major economy during the pandemic.
The country’s gross domestic product grew 20.1% in the three months ended June, a period when India suffered through one of the world’s worst Covid-19 surges of the pandemic. The double-digit growth reflects a comparison with a year earlier when the economy contracted by about 24%, the country’s sharpest decline on record.
India was the first nation to be hit by a major Covid-19 wave driven by the Delta variant, slowing a recovery that began in late 2020. The country’s economic activity remains well below pre-pandemic levels.
The economic damage from the spring surge was limited because the country didn’t impose a nationwide lockdown like the one that caused the severe contraction the previous year, economists say. Still, cities and states imposed local lockdowns, and many Indians restricted their movements voluntarily to protect themselves, with the country recording more than 400,000 cases a day at its peak and hospitals overwhelmed with Covid-19 patients.
The surge has meant a slowed recovery for Indians who were still reeling from the financial impact of the previous year. When a garment factory in the city of Faridabad, where Manish Kumar worked as a manager, closed for five months in 2020, he went back to his home village in the eastern state of Bihar.
Mr. Kumar, 30, returned to the factory earlier this year, but because orders were down, his working days and salary—a little more than $340 a month—were cut in half. He has reduced his expenses, including buying fewer groceries, and is accruing mounting debts. He worries about being able to pay the rent on the place he shares with his wife and younger brother.
“This year when things were starting to get better, the second wave came and destroyed us,” he said. “I have huge debts. God knows from where I will repay.”
Economists say economic activity began to rebound in June as the virus wave receded steadily, eventually dropping to fewer than 50,000 new daily cases in recent weeks. Consumer confidence rose 1.4% in June from the previous month, after dropping 6.3% in May and 1.1% in April, according to a monthly survey from Refinitiv-Ipsos.
The latest Google mobility data in August showed that activity around retail and recreational locations had increased from the low levels during the surge but was still 15% below pre-pandemic levels. In the U.S., the activity around retail and recreational sites was down only 5% for the same period.
In July, the International Monetary Fund lowered India’s economic forecast to 9.5% from 12.5% for the fiscal year ending March 2022 after lowering it earlier in April. The IMF expects the nation’s economic growth to be around 8.5% until 2023. By some estimates, this means India is likely to lose 10% of its GDP in the year affected by the pandemic.
“The overall effect [of the second wave] on the economy was far less pronounced than the draconian lockdown last year. It clearly, however, moderated the recovery momentum that was visible in the January-March quarter of 2021 and postponed a return to normalcy by at least half a year,” said Mihir Swarup Sharma, head of the economy and growth program at Observer Research Foundation, a think tank based in New Delhi.
Widespread unemployment is expected to weigh on the country’s recovery. India’s middle-class consumers are the engine that typically powers its economy, but many people have lost income or jobs altogether.
R. Murali, a 50-year-old executive at a Delhi-based company that refurbished used vehicles, took a salary cut when the Covid-19 wave hit in the spring. He eventually resigned this month after working for a fraction of his previous salary for months and is now jobless.
“I have been eating out all my savings and now face a severe challenge in repaying my home-loan installments,” said Mr. Murali, who put plans on hold to buy a sports-utility vehicle this year. “My life has been shattered, and dreams are dead for now. No company is offering me a post or salary matching my experience.”
Even before the pandemic, India was struggling to create enough jobs for its young and rapidly expanding workforce. The country has an estimated working age population of around 550 million, which is growing at an annual rate of 2.2%, according to Sujan Hajra, chief economist at Mumbai-based Anand Rathi Securities.
At that rate, the country needs to be creating around one million jobs a month just to meet the demand, he said, but that wasn’t happening even before the pandemic. The economic impact of Covid-19 has only exacerbated the problem.
That’s pushing people into work that doesn’t match their skill sets and weighing on productivity. For example, an estimated 42% of the workforce is employed in the agricultural sector, more than the country needs, he said.
“Unemployment continues to be a big challenge. We have already witnessed and are witnessing several social protests across the country from people who can’t find a gainful job,” said Mr. Hajra.
Economists say the Indian economy has a good shot of recovering in the latter half of the year, though the potential for another wave remains a risk. The pace of vaccinations could also potentially affect the economy.
As of Aug. 30, an estimated 10% of India’s more than 1.3 billion people had been fully vaccinated, while 25% had received at least one dose, according to Our World in Data, an Oxford University project tracking the global vaccine rollout.
“We expect India to vaccinate 60-65% of its total population by the end of this fiscal year, and that leaves the near-term outlook vulnerable to brief interruptions,” said Anubhuti Sahay, head of economic research for South Asia at Standard Chartered Bank.
Ms. Sahay said the impact of another rise in cases was likely to have a limited impact, however, given the increasing vaccination coverage and the fact that the economy has already adapted to higher levels of Covid-19.