India — COVID-19 pandemic accentuates economic vulnerabilities

The OECD forecasts the world’s third-largest economy will contract 3.7% next financial year, or 7.3% if an acute health crisis requires a new general shutdown in the second half of 2020. Delhi largely lifted a strict nationwide lockdown to curb the spread of COVID-19 on 8 June. Freeing India’s 1.4 billion people—almost a fifth of humanity—from mobility restrictions risks raising the infection rate. The lockdown was successful in moderating the spread, but not halting it. A string of record single-day spikes in the week leading up to 8 June saw total recorded cases reach 265,000 (Chart), up to over 400,000 by 20 June.

But the lockdown imposed a heavy toll on the economy, which was slowing even before the onset of COVID-19_. The official unemployment rate surged to a record 23.5% in May from 8.7% in March. The purchasing manager indices for both services and manufacturing suggest a sharp contraction for the second consecutive month in May, reflecting business closures and weak demand. The lockdown has disproportionately affected the country’s small enterprises and informal sector, where 90% of India’s workforce is employed. In June, Moody’s downgraded India’s sovereign credit rating to the lowest investment grade level, citing a prolonged period of sub-potential growth, weakening debt affordability and persistent financial sector stress, all of which the authorities may be challenged to mitigate and contain.

The dour outlook will challenge the goal of lifting India into Australia's top three export markets. As Australia’s second largest education export market in 2019, the subdued Indian economy may weigh on the expected rebound in education exports if international travel restrictions are lifted prior to the 2021 academic year.