By Mihir Sharma,
India is recovering from a quadruple hit that is virtually unique even during this pandemic. First, growth has suffered an impact that appears to be greater than any of its peers, with GDP contracting 23.9% in the first quarter after the pandemic. While the economy has reopened somewhat since then, it continues to be beset by supply constraints. That means, secondly, that inflation may have reached almost 7%, according to Abhishek Gupta of Bloomberg Economics.
That is outside of the Reserve Bank of India’s comfort zone. And third, all of this has hit an economy that was already suffering from a decline in potential growth and a major tax revenue crisis following the poor performance of a national goods and services tax.
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India could still have weathered this economic storm had the total Covid-19 cases not exploded as well. The country now registers more than 83,000 new cases a day. Most of the nations of the world have successfully moved away from the top of their infection curves; in India, on the other hand, new daily records are still being set.
Now it is likely that the pandemic, as feared, has moved from urban areas to the vast and crowded rural interior of India. Here, health services will be far less equipped for an increase in cases, and the distant state machinery itself may not be aware of localized outbreaks until it is too late.
The government, faced with an economy in crisis and with its closets completely empty, has no real way to directly improve the well-being of those most affected. Programs like Britain’s leave scheme or the US $ 600 weekly unemployment benefit are a distant dream in India. Even if the government had the money, which, thanks to its fiscal bungling, it doesn’t, it couldn’t be sure of getting it to people in need.
So as far as officials are concerned, the only way for people to recover is by gradually lifting restrictions related to the pandemic. That is precisely what is happening: restrictions are being removed without taking into account the increasing burden of cases and with minimal information on potential clusters of infections.
Interestingly, there is very little panic in India, whether among lawmakers or the general public. Perhaps this is because the case fatality rate, as far as the government knows, is well below 2% and is therefore among the lowest in the world.
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We don’t know why: are we missing cases, as The Lancet suggests? India is increasingly using faulty antigen testing, so that’s certainly a possibility. It is also possible that Covid-related deaths are not recorded as such.
While there are no signs yet that the healthcare system is overloaded, it may be getting there. Delhi’s most prestigious state hospital recently tried to shut down all outpatient work to focus on hospitalizations. In any case, rising case rates will inevitably put pressure on India’s inadequate healthcare systems. So it is quite possible that the fatality rate will also increase, tragically.
It is worrying that the rhythm of a great “stimulus” has started. Pressure is mounting on the Finance Ministry, which has so far been impressively careful, to start shelling out more cash for the business. Some sectoral associations have even gone to the Supreme Court to require judges to make sure they do not have to pay interest on their loans.
However, the fact is that a “second stimulus”, especially one directed at companies, would be fiscally dangerous. It would also be a waste of money because neither consumer nor business sentiment will revive while the number of cases is growing so fast. Everyone can see the curve and no one knows how bad it can get.
Meanwhile, as the Delhi hospital’s attempt to cut routine health services indicates, the silent costs of the pandemic are mounting. The immunization program, for example, has been essentially halted, meaning that a generation of children will be particularly vulnerable to communicable diseases like measles.
Millions of children who already receive an education that does not meet global standards cannot go to school. And, unlike in the West, only a quarter of students in India can access classes online. Given that this generation is the one that will have to take India’s last chance at prosperity, that’s especially bad news.
India will not have a proper idea of the extent of these quiet costs for some time, certainly not before next year. The Finance Ministry and the government in general should resist calls to spend money now that they don’t have it. You’re going to need that ammo even sooner.
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