A view of Srinagar, Kashmir's closed commercial hub after strict restrictions were imposed on May 12, 2021. Photo: Faisal Khan/Anadolu Agency via AFP

India’s uncontained and virulent Covid-19 second wave is deflating hopes of an economic rebound and raising questions about the potential long-term economic fallout of the crisis.

The country now has a caseload second only to the United States but is now adding new cases at a much faster rate due to the new highly contagious B1617 Indian variant.

India has recorded over 24.6 million cases and over 270,000 deaths from the disease, though the true extent of the contagion’s spread is likely unknown due to under-testing.

There are currently 3.6 million active cases, a caseload that has brought the health system to breaking point.

Former central bank governor Raghuram Rajan said the pandemic was India’s greatest challenge since independence.

At a virtual event organized by the University of Chicago Center in Delhi, Rajan said during the first wave the challenge was largely economic because of lockdowns, but now it is both economic and personal.

“There will be a social element to it as we go forward,” he added.

Raghuram Rajan, the former governor of the Reserve Bank of India, is concerned. Photo: AFP

Rajan, now a professor at the University of Chicago Booth School of Business, said during the pandemic the government was not there to help people for various reasons. He lauded the Maharashtra state government for successfully dealing with the crisis of oxygen and bed shortages, but pointed out that many other states fared poorly.

He said that once the pandemic was over, if we don’t seriously question society, it would be almost as big a tragedy as the pandemic. “I do hope as this pandemic passes, we recognize that there are situations where government breaks down. The pandemic has shown that we are all connected. No man is an island, no woman is an island,” he added.

Rajan was the governor of the Reserve Bank of India from 2013 to 2016.

In an earlier interview with a television channel, he said India’s complacency after last year’s first wave, as well as a “lack of foresight, a lack of leadership,” has put the country in a difficult situation.

“Anybody paying attention to what was happening in the rest of the world, in Brazil for example, should have recognized the virus does come back and potentially in more virulent forms,” he said.

Rajan added that the Reserve Bank of India had been “as accommodative as possible” to support the economy in the face of inflationary pressures.

As doubts build over the Indian economy’s performance going forward, he said the central bank’s foreign exchange reserves can offer “a measure of comfort for foreign investors.”

Livelihood crisis

Jean Dreze, another noted economist, said the country might be heading toward a “serious livelihood crisis.” He said for working-class people, the present situation is not very different from last year when the country went into an economically debilitating lockdown.

In March 2020, the Indian government imposed a strict nationwide lockdown, curtailing all forms of transport and flights. Only the movement of essentials and medicine were allowed.

This time, individual state governments have been granted permission to impose lockdowns if they feel it necessary to contain the pandemic.

Health workers unload the body of a person from a hearse who died of coronavirus at a graveyard in New Delhi on April 20, 2021. Photo: AFP/Mayank Makhija/NurPhoto

However, Dreze pointed out that the fear of infection is much more widespread compared to last year’s lockdown and that will make it hard to revive economic activity. “Compared with last year, many people have depleted savings and accumulated larger debts,” he said.

Dreze said the country was paying a particular price for neglecting its healthcare sector, which has been stuck at around 1% of gross domestic product (GDP) for decades.

The current escalating outbreak has made deeper inroads to small towns and villages, where the healthcare infrastructure is worse than in big cities.

Meanwhile, various rating agencies are revisiting their earlier growth projections for India. The latest to do so was Moody’s, which said the current second wave will slow the near-term economic recovery and could weigh on longer-term growth dynamics.

It lowered its GDP forecast for 2021 to 9.3% from 13.7%, which was based on earlier hopes for a post-pandemic bounce off last year’s low growth.