Rural India sinks deeper into debt as Covid-19 pandemic wipes out work

The coronavirus and a lockdown aimed at stopping it last year saw millions of people thrown out of jobs in cities and towns and forced back to their villages, and ever higher levels of debt.

Interviews with 75 households in a cluster of eight villages in India’s most populous state showed household incomes have slumped nearly 75% on average. Almost two thirds of the households have taken on debt.

Key Highlights

• Big debt and low income in the countryside will hold back any economic recovery the government is trying to generate and also dent private savings and investment for longer than expected, economists say.
• “It will have a huge impact and prolong the recovery process. Private consumption and investments both will be hurt. There is merit in finding ways to put money in the hands of the people,” said N.R. Bhanumurthy, economist and vice chancellor at Bengaluru-based B.R Ambedkar School of Economics.
• India’s gross domestic product fell by a record 7.3% in the year that ended on March 31. The government has forecast 10.5% growth for 2021/2022 but a second wave of the pandemic has dented expectations and several economists have cut their forecasts.
• The Reuters investigation showed most of the 75 households in the Uttar Pradesh cluster, a combined 518 people, have taken out total debt of 6.12 million rupees ($82,250), more than 80% of which remains unserviced, the householders said.
• Borrowing has risen by three times since the pandemic hit in March 2020 and about half of that was taken out in the past six months, the survey found.
• With no jobs or with bread-winners sick, the cumulative monthly income of the 75 households has dropped to about 220,000 rupees ($2,960) from 815,000 rupees ($10,960) before the pandemic.

SOURCE: Business Standard

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