The COVID-19 pandemic severely disrupted the Indian economy, causing a historic GDP contraction of 7.3% in 2020–21. Although recovery has begun, the economy continues to face several major challenges across sectors.

Unemployment remains a major issue, particularly in the informal and unorganized sectors. Lockdowns led to large-scale job losses, and even after reopening, employment recovery has been uneven. The MSME sector, which forms the backbone of India’s economy, continues to struggle with reduced demand, lack of credit, and delayed payments. The banking sector faced rising non-performing assets (NPAs) as borrowers defaulted. Although NPAs stood at 3.9% (RBI, March 2023), stress remains in sectors like MSMEs and real estate. Credit growth is recovering but remains uneven.

Inflation is another concern. Supply chain disruptions, fuel price hikes, and global uncertainties pushed retail inflation beyond the RBI’s target range several times, affecting consumption and savings. Post-pandemic inflation—especially in food and fuel—reduced household purchasing power. High inflation also affected savings and slowed down demand recovery in rural areas. The fiscal deficit widened to 6.4% of GDP in 2022–23 due to increased welfare spending, limiting future fiscal space. Managing this alongside growth and social sector investment is a delicate task. In addition, slow private investment, weak exports, rural distress, rising inequality and gaps in healthcare and digital infrastructure continue to pose serious hurdles.

To address these challenges, the government and RBI need coordinated efforts. Priority should be given to supporting MSMEs through easy credit and faster loan disbursals. Employment programs and skill development must be expanded. Banking sector reforms, including digital inclusion and NPA resolution, are essential. Targeted inflation control measures and investment in rural health, education and internet infrastructure can ensure inclusive growth. India also needs to address structural reforms in labour, agriculture, and taxation to boost long-term growth.

In conclusion, while India is on the path to recovery, focused efforts are needed to overcome these post-COVID economic challenges and ensure a strong, resilient financial future.