A policeman sets a barrier at a roadblock. India on Friday extended its nationwide lockdown for two more weeks. Image Credit: AFP

Dubai: India may be looking to partly reopen its economy, but analysts aren’t hopeful of a recovery happening anytime soon.

After a pandemic-induced lockdown that has brought the economy to a near halt for well over a month, worries have been worsening over its labour market and escalating number of new coronavirus cases.

“The severe weakness in India’s labour market and growing risk aversion among banks suggest that the virus and the measures to contain it have already inflicted lasting damage on the economy,” wrote Darren Aw, economist for Asia in Capital Economics.

“Even so, with the number of reported cases still on the rise, India’s nationwide lockdown – which was currently due to end on Sunday – has been only partially relaxed.”

More curfews with minimal easing

As widely expected, the government announced plans on Friday to partially lift curfew in certain lower-risk districts, but was forced to extend lockdown by another two weeks in many other parts of the country that are currently hotspots for the virus outbreak.

This is mainly as the world’s second biggest populous country still struggles to see an easing of new cases similar to other global virus hotspots. India’s fresh coronavirus cases are still rising with little sign of slowing down.

The number of coronavirus cases in India, a country with a population of 1.3 billion, was at 35,365, while the number of fatalities rose to 1,150.

India reported over 1,900 new coronavirus cases on Tuesday, which was the second-highest jump since it began reporting infections at the end of January. Since Tuesday, the country has been seeing over 1,700 cases recorded each day until Friday, the 38th day of a nationwide lockdown.

Meanwhile, currently 3.3 million people have been reported to be infected by the novel coronavirus globally.

Workforce worries only worsen

India’s unemployment rate could have climbed to nearly 30 per cent as the economy lost jobs after a nationwide lockdown took effect in the last week of March, according to a survey by the Center for Monitoring Indian Economy Pvt.

India possesses a large labor pool as almost half its population of 1.2 billion is of working age. A majority of the working population is engaged in the unorganized, or informal sector, working for small businesses or manufacturing units that employ less than ten individuals.

The unemployment rate in India averaged 7.34 percent from 2018 until 2020, reaching an all-time high of 8.20 per cent in August of 2019 and a record low of 6.70 per cent in November of 2018.

Manufacturing and construction, the biggest employers among industries, are the most vulnerable for job losses, followed by accommodation and food services, according to Crisil Ratings.

While India lacks an official index on jobs, Centre for Monitoring the Indian Economy has estimated India’s unemployment rate at 29.4 percent in rural areas and at 25 percent in urban areas for the week ended April 26 as lack of movement of manpower and goods froze the economy.

Heightened risk aversion among banks

Risk aversion has heighted among Indian lenders and debt market participants after a default by Yes Bank was seen hampering credit supply to the economy.

Credit flow in the economy was already restricted by liquidity constraints in the banking and non-banking financial sectors even prior to the coronavirus outbreak.

Now, volatility in global financial markets in the wake of coronavirus crisis coupled with growing risk aversion in the banking system will further hamper credit supply. In fact, heightened risk aversion in the system will put liquidity pressure on small private sector lenders, curtailing even their capacity to lend.

As per Moody’s, the credit rating agency, such issues along with widespread business disruptions will lead to a sharp decline in the economic growth of the country, which has already been slashed by the rating agency from 5.3 per cent to 2.5 per cent for 2020.

Reserve Bank of India (RBI) has since last month delivered rate cuts and injected over $50 billion (Dh 183 billion) in liquidity. Just this week the central bank announced a $6.6 billion (Dh24 billion) special liquidity facility for mutual funds, a move that came after Franklin Templeton, one of India’s top fund houses, decided to shut six of its debt schemes.