India’s economy struggles as coronavirus cases rise

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India faces a dilemma — the country has the second-highest coronavirus caseload in the world at 4.2 million people and its economy is struggling.

India overtook Brazil this week, as it reported a record 90,000+ new cases on Saturday and nearly 92,000 on Sunday.

Yet, despite surging infections, India desperately needs to get its economy working again. It will need to do so in order to avoid the brutal impact of unemployment and rising poverty.

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Debt approaches highest level in four decades as India’s economy struggles

According to The New York Times, the government’s tax revenues have plummeted. Some states are unable to pay health care workers and government debt is approaching its highest level in 40 years.

As the below graph from Trading Economics shows, unemployment soured in the spring following the government’s ill-fated lockdown March 24:

The recovery has been swift but far from complete. Tens of millions of migrant workers, for example, are reluctant to return from the countryside to the cities.

As the New York Times explains, the lockdown was announced with just four hours notice. Offices, factories, trains, roads and even the borders between states were closed.

Instantly, tens of millions of Indians lost their jobs. Facing potential starvation, many began streaming back to their homes in the countryside, often by foot, in an epic migration of biblical proportions.

In the process, they spread the virus to every corner of the country and within touching distance of all 1.3 billion people.

Back to work?

As the unemployment figures show, some businesses are getting back to work despite the rising infection rates. The authorities are trying to contain local outbreaks while limiting a nationwide surge, but it is a juggling act they appear to be losing.

Workers remain reluctant to go back to work. Construction and factory workers are in many cases staying in their countryside villages.

In addition, consumption is way down. That is due to consumers’ fear of catching the virus in shopping malls and because of uncertainty over what the future holds. As such, saving for tomorrow is more of a priority than spending today.

Cities like New Delhi that had seen a gradual return to life are now seeing local containment zones being applied again as infection rates rise.

The New York Times cited a recent Google Mobility Report — which tracks cell-phone data — that noted trips to retail and recreation areas have dropped by 39% compared with before the pandemic. In Brazil and the United States, the drops were less than half as severe.

Economy struggles even before pandemic

The economy was suffering before the pandemic.

Quarter by quarter, India’s economic growth rate has been dropping, The New York Times states, from 8% p.a. in 2016 to 4% right before the pandemic.

A growth rate of 4% would be great for the U.S. or Europe. In India, that level is nowhere near enough. Millions of young people are streaming into the workforce each year, hungry for their first job.

Thankfully, the death toll is low compared to the level of infections. However, even at the official figure of 71,680 to date, it is sufficiently high for the population to be extremely wary of returning to life as normal. Many suspect – both inside the country and outside observers – that the true figure is much higher.

The resulting caution is a major hindrance to the economy returning to any level of growth before next year and even beyond.

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