Indian financial markets have seen a meteoric recovery after the slowdown caused by the country’s devastating second wave of coronavirus, with stocks near all-time highs.
But outside the cities, rural families are still rebuilding their lives even as public health officials warn a third wave is on the horizon.
“You might see the headlines come back, but that doesn’t mean all is well,” said Dharmakirti Joshi, chief economist at CRISIL, a rating agency.
The shocking human cost of the Indian wave of Covid was revealed last month by drone footage that showed hundreds of shallow graves along the Holy Ganges.
Despite an accelerated surge in vaccinations, analysts warn that the calamity is also weighing heavily on India’s economic outlook, dampening consumer demand that policymakers say will boost growth.
“The population is psychologically traumatized,” said Jahangir Aziz, head of emerging markets economics at JPMorgan. “All investment plans – all sustainable consumption plans – will be postponed.”
Until the emergence of the Delta variant, first detected by Indian scientists in rural Maharashtra in February, India’s economy was expected to post double-digit growth after contracting 7.3% last year .
But the second wave pushed the Reserve Bank of India’s consumer confidence index to an all-time low of 48.5, from 84 before the pandemic. As of April 1, the virus is known to have infected around 18 million people and killed at least 232,000. Analysts suspect the real toll is much higher.
The RBI recently reduced its estimate of gross domestic product growth for this year to 9.5 percent, from 10.5 percent. JPMorgan predicts that India will only experience 9% growth, which Aziz said would leave the economy around 10% below its projected levels before the pandemic.
“Anyone hooked into the global market will do very well,” he said. “But Indian consumption, Indian investments and Indian small businesses are going to be damaged at a level that is hard to imagine. Beyond the basics, people are going to be very, very careful about buying. “
Indian workers were hit hard last year when 100 million jobs evaporated overnight in strict containment, triggering an exodus to the countryside. At the end of 2020, around 15 million former urban workers were still unemployed, while those in jobs were earning less than before, according to a study by Azim Premji University.
Strong performance in agriculture, which grew 3.6 percent last year on heavy monsoon rains, and heavy government spending on rural workfare programs helped cushion the shock.
But in a country where patients themselves pay nearly 70% of healthcare costs, the outbreak of Covid has forced millions of families to dip into their savings, sell assets or borrow to care for sick loved ones.
This shock is likely to depress consumer confidence for months, especially among middle-class and working-class families. “Health spending is eating away at household balance sheets, especially the poorest households,” Joshi said.
Shobhnath Patel, a 38-year-old karate instructor in rural Uttar Pradesh, said his family had struggled since the pandemic forced his classes to be canceled, two nephews lost their jobs in the auto industry and that his brother’s house painting business had collapsed.
When his older brother was hit by Covid in April, the family used up their savings of Rs 80,000 ($ 1,080) on an ambulance to the nearby town of Varanasi, doctors’ fees, an oxygen cylinder, medicine and hospital bills in an unsuccessful attempt to save him.
Other families in Patel village, Paterwa, suffered similar setbacks, with the virus striking at least one member of each household and killing a dozen or so.
“The economic situation of most people is at a very delicate point,” Patel told the Financial Times. “So many people have spent a lot of money on the treatment of their family members. Weddings, house building plans, or any of those great things will have to be put on hold. Every family has suffered.
Caught off guard by the second wave, many Indians seem resigned to the inevitability of a third wave, which will also weigh on demand. “There is a tremendous amount of uncertainty,” Joshi said. “No one can predict the severity of another wave.”
India has so far administered 315 million doses of the vaccine, or about 23 doses per 100 people, well below the threshold for safe economic reopening, although the pace of inoculation is accelerating. But, as JPMorgan’s Aziz pointed out, “any increase in mobility runs the risk of starting another wave.”
Pessimism is not universal. Saurabh Mukherjea, founder of Marcellus Investment Managers, said “business activity is picking up quickly” as restrictions ease, while anxiety over public transport coupled with cheap financing fuels demand cars and motorcycles. “Nobody wants to take public transport,” he said.
But he admitted that the sustainability of any rebound in consumer demand depended on the trajectory of the virus. “If we stray into a third wave again, we will come back to stagnation. “