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COVID-19 impact: Rural India sinks deeper into debt as household incomes slump

COVID-19 impact: Rural India sinks deeper into debt as household incomes slump

The coronavirus and a lockdown aimed at stopping it last year saw millions of people thrown out of jobs in cities and towns and forced back to their villages, and ever higher levels of debt

Interviews with 75 households in a cluster of eight villages in India's most populous state showed household incomes have slumped nearly 75% on average Interviews with 75 households in a cluster of eight villages in India's most populous state showed household incomes have slumped nearly 75% on average

Asha Devi doesn't remember how many meals she has skipped as she struggles to feed her family of seven in a remote corner of northern India where the novel coronavirus is compounding old problems of rural debt and poverty.

Devi, 35, had to mortgage her land for a 20,000 rupee ($270) loan and six month on, as the money runs out, she has stopped buying milk, halved her use of cooking oil and can afford lentils only about once every 10 days.

With her construction worker husband jobless, she's facing going deeper into debt to get by.

"Sometimes I go to sleep hungry. Last week, I think I went to bed hungry at least twice but I can't remember," Devi told Reuters as she wiped away tears with her threadbare sari outside her mud house in her village in Uttar Pradesh state.

Prime Minister Narendra Modi's government has promised free foodgrains for the poor but the rations are limited and not enough for the family, Devi said.

The coronavirus and a lockdown aimed at stopping it last year saw millions of people thrown out of jobs in cities and towns and forced back to their villages, and ever higher levels of debt.

Interviews with 75 households in a cluster of eight villages in India's most populous state showed household incomes have slumped nearly 75% on average. Almost two thirds of the households have taken on debt.

Devi's husband used to have a job in construction in the more prosperous state of Punjab to the northwest, which kept the family going. Now the job has gone and he's back home and struggling to find work.

Others like him who have lost jobs crowd around a brick kiln near their village every day hoping for work.

HOLDING BACK RECOVERY

Big debt and low income in the countryside will hold back any economic recovery the government is trying to generate and also dent private savings and investment for longer than expected, economists say.

"It will have a huge impact and prolong the recovery process. Private consumption and investments both will be hurt. There is merit in finding ways to put money in the hands of the people," said N.R. Bhanumurthy, economist and vice chancellor at Bengaluru-based B.R Ambedkar School of Economics.

India's gross domestic product fell by a record 7.3% in the year that ended on March 31. The government has forecast 10.5% growth for 2021/2022 but a second wave of the pandemic has dented expectations and several economists have cut their forecasts.

The poor have especially been hit hard.

The Reuters investigation showed most of the 75 households in the Uttar Pradesh cluster, a combined 518 people, have taken out total debt of 6.12 million rupees ($82,250), more than 80% of which remains unserviced, the householders said.

Borrowing has risen by three times since the pandemic hit in March 2020 and about half of that was taken out the past six months, the survey found.

With no jobs or with bread-winners sick, the cumulative monthly income of the 75 households has dropped to about 220,000 rupees ($2,960) from 815,000 rupees ($10,960) before the pandemic.

"Almost everyone is in debt in this village ... unemployment is the biggest problem," said 55-year Komal Prasad, a former headman of Gauriya, a hamlet in the cluster with a population of just over 2,000 people.

Only about 30% of the people in Gauriya had a job or were looking for work, many fewer than before, villagers said.

Juggi Lal, a 35-year-old farmhand, said she was struggling to buy medicine for her disabled husband because there was no work and she owed 60,000 rupees ($806) to a moneylender.

"Every morning I wake up thinking what work will I get, how will I get through the day?"

Rural unemployment rate, which used to hover around 6% before the pandemic, rose to 8.75% in June, according to the Mumbai-based Centre for Monitoring Indian Economy (CMIE).

RIPPLE EFFECT

The mix of lower incomes, higher debt and rising prices of staples is dampening demand in the countryside where two-thirds of Indians live.

Sales of everything from biscuits, tea and lentils to auto parts have taken a hit, vendors say. Some have shut down shops that their families have run for generations.

Gosh Mohammed, 43, used to sell up to 8,000 rupees ($107) of groceries a day before the pandemic. Now it's down to 1,000 rupees ($13.5) a day.

He has taken 60,000 rupees worth of goods from a wholesaler on credit but hasn't been able to pay it off for six months.

"I never used to take goods on credit because buying with cash gets us more of a discount," Mohammed said.

"Now I think I'll have to shut my shop as wholesalers have stopped giving me credit and I've sold the goods on credit and that money isn't likely to come back."

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