Loan Moratoriums and the economic setback in India

Before the pandemic took a toll on India’s economy; it was flourishing at another level. In 2019 alone, the Indian GDP was an estimated 9542.2 billion dollars, 543.6 billion dollars more than it was in 2018. However, the GDP growth rate fell to -10.28% and inflation increased by 4.9% in 2020. In early 2020, unemployment rose from 6.7% to 26%. According to various reports, approximately 14 crores (140 million) people lost employment along with a massive dip in salaries. An income drop was also experienced by more than 45% of households nationwide.

Because of these circumstances, the Reserve Bank of India (RBI) issued a statement stating that a moratorium for home loan borrowers would be implemented for three months between March 1, 2020, and May 31, 2020. Subsequently, the RBI extended the duration of the moratorium by three more months, up to August 31, 2020. This provision of a loan moratorium enabled home loan borrowers to delay the payment of their monthly installments. Also, the interest rate was not implemented on the due amount during these six months. This move taken by the RBI was greatly appreciated as it provided a source of relief to the people in such a distressing time.

The month of August saw a considerable fall in Covid-19 infections and deaths. Consequently, the lockdown was lifted and almost all restrictions on travel were also implemented. Moreover, the economy was also growing at an appreciable pace and the revival rate was much higher. According to the finance minister, Nirmala Sitharaman, rating agencies were revising their growth rates for India.

However, the result of all the restrictions being lifted was not a pleasant one. Huge social gatherings with approximately 3.5 million people were a source of yet another nightmare. As of now, the condition of India’s economy, along with the health infrastructure is fragile. The health infrastructure is on the verge of collapsing.

Furthermore, JP Morgan has downgraded its earlier predictions regarding GDP growth for FY 22 to 11% from 13%. UBS predicts 10% GDP growth, a fall from 11.5% earlier and Citi has downgraded growth to 12%. The economy is projected to have contracted by almost 8%.

Considering this downfall in the economy, there was a lot of speculation around the idea of a loan moratorium being announced for 2021 as well. On 5 May, the RBI issued a statement stating that it would allow certain individuals and small borrowers more time to repay debt. In addition, the RBI also permitted banks to provide priority loans to vaccine producers, hospitals, and COVID-related health infrastructure. RBI governor, Shaktikanta Das announced support measures to soften the pandemic’s blow on the economy. RBI will give Rs 50,000 crore of liquidity support to banks for providing fresh lending "to a wide range of entities including vaccine manufacturers; importers/suppliers of vaccines and priority medical devices; hospitals/dispensaries; pathology labs; manufactures and suppliers of oxygen and ventilators; importers of vaccines and COVID related drugs; logistics firms and also patients for treatment," he added.

It can be said with surety that this decision made by the RBI will prove advantageous for the Indian economy and people in the long run.

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