Henny Sender is a managing director at BlackRock in Hong Kong and a senior adviser to the BlackRock Investment Institute.
During the worst of the pandemic in India in recent weeks, much of whatever supply of oxygen there was for COVID-stricken patients came not from government action, as might have been expected, but rather from the efforts of private companies and nonprofit organizations.
Numerous governments have let down their citizens during the crisis, but in India -- along with some Latin American countries -- the failure has been particularly striking, with long-neglected health care infrastructure combining with the most virulent form of the virus to deadly effect. By India's official count, over 30 million citizens have contracted the virus.
In many nations, it was a myth to suggest all residents were equally vulnerable, that the suffering was shared between the well-off and the less economically fortunate. In India, the magnitude of the calamity was such that only the very richest were able to charter planes and escape. Even those who considered themselves well-connected and wealthy found the phone unanswered, the hospital bed unavailable and the oxygen tank unobtainable. By default, the suffering became almost universal.
Now, as the second wave thankfully recedes, Indians are beginning to ask what comes next. It is inconceivable that India won't change, but will it change for the better or the worse? The question applies both to an increasingly polarized society and a deeply scarred economy.
Optimistic investors think they know the answer as they look beyond the pandemic to the inevitable recovery. Bonds, shares and the rupee are all strong and have been among the best performers in their respective classes when compared to the rest of the continent in recent months. A series of initial public offerings of companies such as Reliance Jio and online education company Byju's and Alibaba-backed Paytm will attract more flows.
Unfortunately, it is not that simple. Fully 77% of workers surveyed in a poll from Bank of America said they had experienced job or income cuts, 57% had their salaries reduced and 20% had been laid off. Many economists believe that by the end of this year, growth will be 8% below the pre-pandemic levels -- and even before the virus struck, growth had been slowing dramatically.
A country that needs to generate almost a million jobs a month for its young people but created less than a million jobs a year before the virus struck cannot afford such setbacks.
"Households are not borrowing, banks are not lending and businesses aren't investing," noted the Indian economists' team at JPMorgan in Mumbai, adding that credit growth has been slowing all year. There is little reason to believe these circumstances will change anytime soon. Capacity utilization is well under 70%.
"Low-cost labor and hard infrastructure are not sufficient conditions for attracting manufacturing foreign direct investment and capturing the share of global supply chains. India will need to focus on soft infrastructure, e.g., a deep talent pool and intellectual property protection, to capture share," said Neeraj Seth, head of fixed income for BlackRock in Asia.
If India has a competitive advantage at this point in time, it is in its educated, English-speaking middle class. Yet today, the consumer internet -- which has done so much to provide jobs, raise incomes and affordability, raising the standard of living for hundreds of millions in the process, and create billionaires in China -- has not transformed India. "Can technology drive productivity and scale?" asked analysts at Bernstein in a recent series of reports. "Technology is not a direct solution," they concluded. "India lacks scale in core technology."
Despite a population roughly equivalent to that of the other Asian giant, China, business-to-consumer e-commerce last year amounted to only $38 billion, according to Redseer, a reflection of low income and the lack of quality jobs. By contrast, the figure in China was 11.8 trillion yuan ($1.8 trillion), using data from China's National Bureau of Statistics.
To be sure, there are a few bright spots amid the widespread gloom. For example, the central government is finally offering interesting production-linked incentives to try to persuade both local companies and foreign multinationals to make as well as assemble electronic goods such as cellphones in India. Manufacturing today is only 17% of GDP, while makers of mobiles and white goods spend up to $60 billion a year on imported parts, according to data from Bank of America.
There is reason to hope. Improvements in road transport and plans to improve rail links will make infrastructure far less of a bottleneck than in the past. Power is no longer the constraint that it used to be.
Hopefully, in retrospect, looking back on the spring of 2021, the second COVID wave will prove to be the trough.