Home COVID-19 India emerges from the shadows of COVID-19

India emerges from the shadows of COVID-19

John West
COVID-19 has killed millions of Indians, pushed many back into poverty and provoked a sharp fall in India’s GDP. What does the future hold for India?
Executive Director of the Asian Century Institute

COVID-19 may have killed around 4 million Indians, according to some deep analysis, not the 465,000 of official estimates. According to World Bank estimates, COVID would have pushed over 70 million people in South Asia (which is dominated by India’s 80% share of the region’s economy) back into poverty in 2020. And India’s GDP fell by 7.3% in 2020/21.   

In short, COVID has been both a health and an economic crisis for India, more so than for most other countries. Micro, small and medium enterprises have been noticeably impacted, along with contact-intensive sectors. India’s COVID tragedy was witnessed by the whole world on their television screens when a second wave (the Delta variant) swept through the country in April/May 2021, and its health system virtually collapsed.

Why did COVID hit India so hard?

India’s poor performance through the pandemic is hardly surprising. As Taiwan, South Korea, Singapore, Japan and Australia have shown, managing a crisis like COVID requires a strong and effective state—in particular, the capacity to provide reasonable public services to citizens—but India, like the Philippines and Indonesia are greatly wanting in this regard, as highlighted by the Fragile States Index

The poor quality of India’s service delivery is reflected in the Indian government’s very low expenditure on health services, which represents only 0.9% of GDP, much lower than China’s 2.9% (based on a much higher GDP), and very much lower than Japan’s 9.1%, according to ADB analysis. Indeed, in April this year, there were reports of India’s health system being on the “brink of collapse”.

Another factor behind India’s COVID tragedy is its poorly managed cities which are very densely populated and have grown rapidly without proper urban planning, and are riddled with slums that can be ideal breeding and transmission grounds for pandemics. According to the World Bank, some 35% of India’s urban population live in slums.

Although Asia has been very successful in reducing poverty, it has not won the war against poverty. Many people in countries like India, Indonesia and the Philippines are still living in “near-poverty”. For example, more than 40% of the Indian population lives on less than $3.20 a day and over 80% lives on less than $5.50 a day. This means that people can be easily thrown back into poverty by COVID-19, a natural disaster or an economic downturn. That’s a key reason why so many Indians were pushed back into poverty by COVID-19. 

India’s second COVID wave recedes quickly

As fast as COVID-19 had hit India, it now seems to be receding.  Today, India’s COVID cases are the lowest in 9 months. India has opened up for travellers from 99 countries. According to the IMF’s latest forecasts, the Indian economy could grow by 9.5% in 2021/22 and 8.5% in 2022/23. It will once again become one of the world’s fastest growing major economies. How is this possible?

Indian governments, at both the national and state levels, responded swiftly to both COVID waves with containment measures, notably lockdowns. The authorities also introduced a range of emergency and economic policy measures. 

After a slow start, dramatic increases in vaccination have been playing a role. India has administered 1 billion doses of COVID-19 vaccine. About 75% of India’s total eligible adult population have received at least one dose, while around 30% are fully immunised. India is the second country, after China, to exceed a billion cumulative doses. India may even be on track to fully vaccinate 40% of its population by end-2021. 

India’s vaccination drive is now being facilitated by the locally developed vaccine, “Covaxin”, which is described as “highly efficacious” and presents no safety concerns, according to a study published in the medical journal Lancet. Covaxin gained emergency approval from the World Health Organization, and has already been cleared for use in 17 countries.

However, in a country well known for gender discrimination, it will also be important for India to close the enormous gender gap for vaccination, as many more men are vaccinated than women. At the same time, India is also contributing to the global fight against COVID as one of the world’s largest vaccine producers.

But more fundamentally, some Indian virologists are arguing that COVID-19 is no longer a pandemic in India. It is an “endemic”, like influenza, typhoid, TB, HIV and malaria. This means that people are protected from COVID by either natural immunity from exposure to the virus or vaccination. According to one survey of blood samples, more than 90% of Delhi’s residents have antibodies against COVID-19. Thus, Dr Gagandeep Kang argues that there will be no more massive outbreaks, only localised ones that affect the unexposed part of the population. 

In other words, a big third wave is highly unlikely. 

Looking ahead

The snap-back in the Indian economy is benefiting from government stimulus and the rapid fading of the second wave. It has benefited from US government aid of more than $226 million. The Indian government has also implemented some welcome structural reforms through the pandemic, notably labour market reforms and privatisation of state-owned enterprises, one-third of which are loss making. 

But the IMF estimates that COVID-19 will have a long term adverse impact on India, which had one of the world’s fastest growing economies in the decade before COVID-19. India’s potential economic growth rate might now be only around 6%, insufficient to generate enough jobs for India’s bulging youthful workforce. 

Human capital development, a major challenge for India, has also been hit as the pandemic has adversely affected access to education and on-the-job skills training for lower-income groups. Government debt, already high before COVID-19, will rise to about 89% of GDP in 2020/21, and fiscal consolidation will be necessary.

And of course, the future course of COVID-19 is unknown, a third wave and new variants can never be ruled out despite the transformation of COVID from epidemic to endemic.

It should also not be forgotten that India’s economy was slowing prior to COVID. The Indian government needs to address the long list of well-known structural reforms that the country desperately needs in the areas of infrastructure, land reforms, female labour force participation, rule of law, reducing corruption, and reactivating trade and investment liberalisation.

Advanced countries—like Australia, Japan and the US—that are relying on India to help balance assertive China will need to encourage it to accelerate its economic reform and realise its immense economic potential.

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Author profile
John West
Executive Director of the Asian Century Institute

John West is author of the recent book, “Asian Century … on a Knife-edge,” and executive director of the Asian Century Institute. He is also adjunct professor at Tokyo’s Sophia University and contributing editor at FDI-Intelligence, a Financial Times magazine. These positions follow a long career in international economics and relations, with major stints at the Australian Treasury where he was director of balance of payments, OECD (head of public affairs and director OECD Forum) and Asian Development Bank Institute (senior consultant for capacity building and training).

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