Expectations for India’s economic growth are being revised sharply downwards as an increase in the number of people losing their jobs and defaulting in debt suggests a more hesitant recovery from the financial shock of the COVID-19 pandemic.
Economists are downgrading their estimates as a range of data – from the rate of checks crashing to the amount of mortgage gold jewelry for sale – shows the extent of the economic damage from a devastating second wave of the disease.
Some observers also fear that the psychological blow from the viral disaster that swept India this year will kill tens of thousands, leaving consumers reluctant.
The Indian government is sticking to its forecast that the economy will grow 10.5% in the fiscal year that began April 1, but on Tuesday the State Bank of India – the country’s largest lender – lowered its growth forecast from 10 , 4% to 7.9%.
Several international banks such as Barclays and UBS have also cut their forecasts.
After a 7.3% decline in 2020-21 – the strongest India has ever seen – the relatively subdued recovery is bringing India into conflict with countries like the United States and China, which are experiencing rapid recovery from the pandemic, and suggests deeper damage to an economy worth around $ 2.9 trillion before the crisis hit.
The knock-on effects of sub-par growth on a rapidly developing economy like India could be significant.
“The GDP growth of less than 10% will be – 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 forecast.
The situation has exacerbated unemployment, which hit a 12-month high of 11.9% in May from 7.97% in April, according to the Center for Monitoring the Indian Economy. According to the private company, unemployment in rural areas, which is usually between 6 and 7%, also reached double-digit values in May.
Last year India announced a $ 266 billion package to support the economy during a strict nationwide lockdown to contain the first wave of coronavirus. Most of this, however, was liquidity aids given to banks to increase corporate lending, with less than a tenth of that amount going to welfare programs for the poorest in the country. .
India has not launched employment promotion programs on the scale of some developed countries, and the government has not announced a major stimulus package since the arrival of the second wave.
Rising unemployment, coupled with government bans, a surge in hospital admissions and deaths in the second wave, and fears of a third wave, are causing many people to cut their spending.
Sales of goods, including groceries, shoes, clothing and beauty products, fell 49% in April, according to the Retail Association of India, whose boss Kumar Rajagopalan expects to see a bigger drop in May.
Meanwhile, auto and motorcycle sales were down 30% in April from March and are likely to plummet over 60% in May, amid automakers like Maruti Suzuki (MRTI.NS) and Hero MotoCorp (HROM.NS) stopped production for several days amid rising infections. Dealers remain closed.
While auto sales rebounded from the first wave last year, it was not to an extent elsewhere and the rebound was short-lived.
In many other economies, demand for large purchases rose sharply as the backlog was revealed, with new car sales in Europe increasing 256% year over year in April.
Shashank Srivastava, executive director at Maruti Suzuki, India’s largest automaker, pointed out the deep psychological impact of the second wave of the virus as the increase in deaths and hospitalizations caused suffering and fear among people.
“Cars are a discretionary purchase that requires a good mood,” he said.
One of India’s largest gold finance companies, Manappuram Finance (MNFL.NS), auctioned approximately $ 55 million of gold in the January-March quarter compared to $ 1.1 million for the previous three quarters combined.
Sales are being driven by rising mortgage defaults backed on family gold jewelry that is typically passed down from generation to generation, a sign of long-term economic stress, experts say.
Another warning sign is an increase in check bounces, which typically occur when there is insufficient funds on an individual’s account to make deductions for loan payments or credit card bills.
In May, the check bounce rate for loan payments doubled year-over-year to 21%, while credit cards rose from 10% to 18%, according to data from Creditas Solutions, a fintech company engaged in digital recovery and Debt collection deals.
HDFC bank (HDBK.NS), the largest private bank in the country, warned in the coming months of further defaults in the retail segment, which also includes personal loans for personal use.
Sashidhar Jagdishan, CEO of HDFC Bank, highlighted the uncertainty in the financial sector and said on a call for investors that “for the first time in so many years we may not have what is going on”.
According to a survey by the Indian polling institute CVOTER, the standard of living of many people has fallen sharply and most people see “no ray of hope in the next 12 months”.
Yashwant Deshmukh, head of CVOTER, told Reuters that people will be reluctant to buy a wide variety of goods, including cars, and will instead spend on insurance products and online skills development courses to make themselves more employable.
“Nobody is going to splurge,” he said.
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