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India is the world’s largest democracy with a population of more than 1.4 billion, but only the eighth country in emerging Asia in GDP per capita (on a purchasing power parity, or PPP, basis), just above Vietnam. Indeed, while Indian economic growth has averaged 6.7% over the period 2015-2019, real GDP per capita has increased by only 5.6%.

The Covid-19 crisis did not spare India, and like many of the emerging economies, the country’s economic and social situation has deteriorated sharply. India recorded its first recession since the fiscal year 1979/1980. However, India’s situation had already begun to deteriorate well before the onset of the pandemic, which only accentuated the country’s weaknesses. The very sharp contraction in GDP triggered by the Covid-19 pandemic highlights the economy’s structural vulnerabilities, especially the large number of workers without social protection. The fragility of India’s banking and financial system is hampering economic growth even though banks are more solid than they were five years ago. Meanwhile, public finances are weak and the government’s fiscal room for manoeuvre to support economic growth or face a new shock is tiny.

On the political front, the Modi’s government, elected for a second term in May 2019, managed to adopt key economic reforms to support medium term economic prospects in fall 2020. However, their implementation is still problematic.