The Coronavirus and India’s Economic Crisis: Continuity and Change

The Covid-19 pandemic and the response to it is the third successive shock (after demonetization and Introduction of the Goods and Service Tax) being experienced by an Indian economy within a period of 4 years. Even before this shock, there were clear signs of Indian growth slowing down considerably and indeed there have been signs for nearly the whole decade now ending that India’s economy was losing steam. Stagnation in investment (capital formation), foreign trade and investment flows, industrial production and in the construction activities have been steady indicators of this in the real economy which is the reason why so many were sceptical of GDP growth figures emerging from the new GDP series introduced in 2015. Even as credit growth has slowed down considerably, a mounting bad debt problem has been seen in the financial system. These trends were all in marked contrast to those seen in the previous decade, and the sharp deceleration in Indian GDP growth seen even before anyone had heard about the Coronavirus was a sign of this deepening crisis. This paper discusses the Covid-19 impact on India’s economy in this background and the nature of the state’s response to argue that the future of India’s economy is grim unless there is a drastic shift in the thrust of government economic policy.