Expectations for India’s economic growth are revised sharply downward as an increase in the number of people losing their jobs and defaulting on debts suggests a more hesitant recovery from the financial shock of the COVID-19 pandemic.
Economists are lowering their estimates because a series of data – from the rate of bad checks to the amount of mortgaged gold jewelry to sell – shows the extent of the economic damage caused by a devastating second wave of the disease.
Some observers also fear that the psychological blow from the viral disaster that ravaged India this year, killing tens of thousands of people, will leave consumers reluctant to spend.
The Indian government is sticking to forecasts that the economy is expected to grow 10.5% in the fiscal year that began April 1, but on Tuesday the State Bank of India – the country’s largest lender – reduced its growth forecast to 7.9% from 10.4%.
Several international banks such as Barclays and UBS have also lowered their forecasts.
After a 7.3% contraction in 2020-2021 – the strongest on record by India – the relatively subdued recovery puts India at odds with countries like the United States and China seeing a rapid rebound at exit from the pandemic, and suggests that more damage was done to an economy worth about $ 2.9 trillion before the crisis hit.
The ripple effects of below-normal growth on a rapidly developing economy like India could be significant.
“GDP growth of less than 10% will be a – I won’t use the word disaster, but it won’t be very nice,” SBI chief economist Soumya Kanti Ghosh told Reuters after lowering his rates. forecasts.
The situation exacerbated unemployment, which reached a 12-month high of 11.9% in May from 7.97% in April, according to data from the Center for Monitoring Indian Economy. Rural unemployment which normally hovers around 6-7% also hit double-digit levels in May, according to the private company.
Last year, India announced a $ 266 billion program to support the economy during a strict national lockdown to contain the first wave of coronavirus. But much of it was liquidity support given to banks to boost credit to businesses, with less than a tenth of the amount used for social protection programs for the country’s poorest.
India has not launched employment support programs on the scale seen in some developed economies and the government has not announced a major stimulus package since the start of the second wave.
Rising unemployment, coupled with state lockdowns, a surge in hospitalizations and deaths in the midst of Wave 2, and fears of a Wave 3 are prompting many to cut spending.
Sales of products such as groceries, shoes, clothing and beauty products fell 49% in April, according to the Retail Association of India, whose chief Kumar Rajagopalan expects a larger decline in May.
Meanwhile, car and motorcycle sales fell 30% in April from March and are expected to fall more than 60% in May, as automakers including Maruti Suzuki and Hero MotoCorp halted production for several days against a background of growing infections. Concessions remain closed.
While car sales rebounded from last year’s first wave, it was not on a scale seen elsewhere and the recovery was brief.
In many other economies, demand for expensive purchases soared when pent-up demand was released, as new car sales in Europe jumped 256% year-over-year in April.
Shashank Srivastava, executive director of Maruti Suzuki, India’s largest car maker, pointed to a profound psychological impact of the second wave of the virus as the surge in deaths and hospitalizations caused distress and fear among people.
“Cars are a discretionary purchase that requires people to be in the right frame of mind,” he said.
One of India’s largest gold finance companies, Manappuram Finance, auctioned off about $ 55 million worth of gold in the January-March quarter, up from 1.1 million dollars over the previous three quarters combined.
Sales are driven by increasing defaults on secured mortgages on family gold jewelry, which are typically passed down from generation to generation, a sign of long-term economic stress, experts say.
Another warning sign is an increase in “bad checks”, which typically occur when there are not enough funds in an individual’s account to cover deductions for loan payments or settlement. credit card bills.
In May, the rebound rate of checks for loan repayments doubled to 21% from a year ago, while for credit cards it rose from 10% to 18%, data shows. of Creditas Solutions, a financial technology company involved in the collection and collection of digital loans.
HDFC Bank, the country’s largest private bank, has warned of further defaults in the coming months in the retail segment, which includes loans to individuals for personal use.
Highlighting the level of uncertainty in the financial sector, HDFC Bank CEO Sashidhar Jagdishan said on a call to investors that “for the first time in so many years, we may not have a idea of what’s going on “.
According to a survey carried out by the Indian polling agency CVOTER, the standard of living of many people has fallen sharply and most people see “no glimmer of hope in the next 12 months”.
CVOTER chief Yashwant Deshmukh told Reuters people will refrain from buying a plethora of goods, including cars, and instead spend on insurance products and online skills development courses to make themselves more employable.
“Nobody is going to splurge,” he said.