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The Next Shoe to Drop? Why a Pandemic Induced Economic Crisis is Likely in India?

A brewing economic crisis in India needs all stakeholders to prepare and if possible, prevent a systemic meltdown and thwart potential bank runs

By Rammohan SusarlaPublished 2 years ago 3 min read
Photo by Alec Favale on Unsplash

While we are busy discussing the Second and the probable Third Wave of the infections due to the Covid 19 virus and its variants, another crisis is brewing in India and it is more than certain that the already battered economy would witness a crisis in the form of stressed banks and financial institutions needing bailouts to save them from collapse.

While the stressors in the Indian Economy have been with us even before the Pandemic struck, the health, humanitarian, and livelihood crises have added to the problems. Already saddled with high NPAs or Non Performing Assets, or Bad Loans, in jargon free language, the Indian Banks and Financial Institutions are now staring at the abyss what with the Court imposed Moratoriums on repayment ending soon and with overburdened borrowers in no position to repay their consumer, housing, and personal loans even after the expiry of the repayment freezes.

Worse, statistics show that nearly 230 Million Indians have been pushed into poverty taking the total number of Indians in BPL or Below the Poverty Line to 450 Million. So, with nearly 40% of the total population in poverty, it is anybody’s guess as to what impact this would have on consumption and more importantly, household distress, which translates into a gargantuan economic and humanitarian crisis.

Considering that the policymakers are betting on a Consumption led Recovery, it is hard to see this as anything but a Pipe Dream as declining, or worse, no incomes for nearly half of the population make it virtually impossible for them to spend on anything but, the bare necessities. Moreover, the Rural India that was the savior in the First Wave is unlikely to play a similar role now given that the Virus has devastated the Hinterland as can be seen from the never ending news about overflowing crematoriums, hastily buried bodies, and the high rates of unreported cases (which the Global Media highlighted for good measure).

With unemployment in double digits, and India on the verge of an unprecedented jobs crisis, one cannot but wonder whether we should worry or be Ram Bharose (at the Mercy of Lord Ram). Indeed, there is not one positive sign amidst the prevailing economic gloom and doom prevailing in the country, and with “relief” being the priority, “recovery” is but a distant “mirage”. Moreover, with the possibility of a Third Wave as well, cautious governments and weary consumers are likely to focus on immediate survival rather than any high voltage consumption and spending binges.

Which leaves us with the inescapable conclusion that an economic crisis is just a matter of time, and it is not if, but, when it would hit. While many experts claim that the fundamentals are strong, there are some who believe that the Indian Economy has gone from good to bad to worse in the last 7 years. A “shock” Demonetization, flawed GST (Goods and Services Tax) rollout, and then successive budgets being exercises in polemics, rather than substance, have all contributed to the “weakening” of the foundations of the Indian Economy.

As mentioned earlier, nothing has been done to alleviate the NPA problem and accounting tricks and gimmicks would not save us from the inevitable “Day of Reckoning” which has merely been postponed, but not prevented. So, we are more or less “on our own” when the crisis strikes. Therefore, with the Next Economic Crisis certain, it is time policymakers and the Indian citizenry prepare for the coming storm in the markets and the broader “real economy”. It goes without saying that the RBI or the Reserve Bank of India has to ensure that there are no “bank runs” and that the situation does not go out of hand. To conclude, with an economic crisis lurking around the corner, there is a dire need for being alert and vigilant and to shed complacency.


About the Creator

Rammohan Susarla

Writer seeking metaphysical fulfillment by publishing meditations and ruminations about the world.

I am a Techie turned Business Analyst who found his true calling as a writer this journey spanning 12 years has been incredibly rewarding.

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