From slowdown to lockdown, India’s economy and the Covid-19 shock

Secondly, the responsibility of the crisis management is shared by the central government and the state governments - some of which have performed better than others, be they from the opposition, or from the BJP, the ruling party. Who the Indian citizens will hold accountable for mismanagement, or otherwise praise, is not yet clear. 

Thirdly, Narendra Modi was not affected by the economic slowdown in 2019 because he was able to shift the debate on some other ground: nationalism, security, religion… Like other national-populist leaders, he plays on emotions (fear, anger) to distract the voters’ attention from socio-economic issues. He may do it again. 

India is rethinking its approach on Chinese FDIs and competing with China to attract foreign manufacturing, what can be expected from this new approach?

India's fear of China’s economic power and in particular overseas investment has been palpable since the launch of the Belt and Road Initiative. But it has increased as a result of the military standoff in Ladakh, and because of the growing influence of China over some of its neighbors, including Nepal and Sri Lanka.

The Indian pharmaceutical sector had to admit, for instance, that most of the active ingredients it was using are imported from China. The temporary disruption of the supply chain as a result of the pandemic caused some panic. 

If Chinese FDIs are no longer welcome, attracting foreign investments from other sources becomes even more necessary. Here, India is very keen to attract the multinational companies which are leaving China - to escape the US/China trade war in particular - and are looking to alternative manufacturing hubs. Whether this strategy will work remains to be seen. Other countries in South East Asia and Latin America are competing with India here. This is a key issue. If the inflow of FDIs is not substantial enough, India may have no choice but to borrow huge amounts on the financial markets - because loans from the World Bank and other multilateral institutions will be insufficient. This in a context of very low rupee, that continues to depreciate.

The most alarmist experts do not exclude the scenario of India having to turn to the IMF sometime next year if the situation of the economy does not improve. This is one of the reasons why emergency decisions have been presented as structural reforms along with the relief package by the Finance Minister. They include a program of privatisations and the liberalization of agricultural markets. Some states have been going much further and dismantling the labor laws protecting the workers. Like other countries, India will not be the same after this crisis - but whether this will be for the better or for the worse remains to be seen. 

Copyright : Manjunath Kiran / AFP