How exactly does the Indian economy work

Emerging marketsIndia in Crisis: How is the Emerging Country Coming Out of Recession?

Like hardly any other country, India is clinging to the hope of mass vaccinations against Covid-19 soon. In some states, the number of infections rose dangerously again towards the end of the year. Schools are closed until March 2021. Send a subcontinent with 1.3 billion inhabitants into a second hard lockdown? The government does not want to risk that. The first one damaged the economy too much. But there are harbingers of recovery - and investors who are loyal.

In the fight against the pandemic, Prime Minister Narendra Modi has opted for the protection of the masses and health when in doubt. Retail, markets, factories and construction sites were abruptly paralyzed in March. And this in a bustling country where more than half of the population lives from agriculture, followed by retail and hospitality. It was not eased until June, gradually and regionally. It was one of the most radical responses to the disease in the world. The price is correspondingly high: India slipped into the deepest recession since official figures were written, and into the worst economic crisis in all of Asia.

No other major economy shrank as much in the pandemic. A year-on-year drop of 24 percent in the second quarter was followed by a further 7.5 percent in the third. The situation remains serious. For 2020 as a whole, the IMF recently forecast a decline of 10.3 percent. The Indian central bank still expected - hardly more optimistically - 9.5 percent at the end of November. Among the G20 countries, the situation is only worse in Argentina.

High resistance

But at a time when there is a lot of talk of resilience, India is showing just that: unexpected resilience. The gigantic country with more than 9.5 million infections has the most corona cases after the USA. If you look at the corona deaths per 100,000 inhabitants, India is with ten cases far behind Brazil, Mexico and Argentina with over 80 each. Without patient discipline in dealing with distance rules, mask requirements and mass tests, the situation would be different.

Laszlo Posset is convinced that "the recovery will come sooner than the statistics suggest." The India boss at T-Systems, the IT service arm for major Telekom customers, has known the subcontinent for decades and trusts its innovative strength and intellectual potential. “India has overtaken the USA in terms of wealth of software developers, and no company in the world can do without its own or purchased IT services from India. That is the key to success for the future. "

In the here and now, however, the IT sector is not yet ironing out other weaknesses. The crisis has also left its mark on domestic companies such as Infosys or Tata Consultancy Services. Economists warn that it will take years for the economy to recover from the damage caused by the crash. Millions of migrant workers lost their jobs in construction, which collapsed by 50 percent, and in industry, which produced 40 percent less. With the lockdown, they fled the cities to their villages. Among the rural population, 30 million people seek help from a government employment program.

Crisis hits household incomes hard

According to surveys, up to 40 percent of the working population (520 million) work and earn less in the formal sector due to the crisis. Among employees, more than 20 million are said to have lost their jobs, in the service sector as well as in manufacturing, such as auto suppliers. Every fourth industrial job is said to have been cut. Economists also name software developers, doctors, teachers and accountants as hard-hit professions.

Consumption collapsed by 26.7 percent in the spring and by a further 11.3 percent in the third quarter. Around half of the households suffered severe income losses by September. "Employment has almost reached the level before Corona," recently reported the business institute CMIE. “The jobs are back, but not the income.” Some kept their jobs with reduced earnings. Others took on less work.

Google's mobility trends also suggest that recovery will not come from consumption. Accordingly, the trade apart from essential goods such as food and medicine and the job-intensive hospitality and entertainment industry are still weak. Public transport hubs and workplaces are still 17 and 29 percent less frequented than before Corona. After all: offices and factory halls are allowed to fill up halfway again.